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Hi Can you help me calculate the OH cost per unit for Product P for the following question :
A company produces two products – P and Q – that are both worked on in two departments – 1 and 2.
Each unit of P spends 1 hour in department 1 and 2 hours in department 2.
Each unit of Q spends 2 hours in department 1 and 2 hours in department 2.
The total budgeted production is as follows:
P 5,000 units and Q 10,000 units
The total budgeted overheads are as follows:
Department 1 $50,000 and Department 2 $90,000Kind Regards ,
For department 1, the total overheads are $50,000, and the total hours worked are (5,000 x 1 hour) + (10,0000 x 2 hours) = 25,000 hours.
So the cost per hour in department 1 is $50,000 / 25,000 = $2.You can do the same for department 2 to calculate a cost per hour for that department.
To cost out Product P, simply take 1 hours at $2, plus 2 hours at the department 2 cost per hour.
@john moffat thank you 🙂
I am not sure what I am doing wrong but the answer I am getting is 5 and the correct answer for the quiz is 8
The cost per hour in dept 1 is $2 (as above)
The cost per hour in dept 2 is $3 ($90,000/30,000 hours)The question asks for the cost per unit of P, which is 1 hour at $2 per hour + 2 hours at $3 per hour (= $8 per unit)
(You are adding $2 and $3, which doesn’t mean anything 🙂 )
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