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Triple Limited makes three types of gold watch-the Diva (D), the Classic (C) and the Poser (P). A traditional product costing system is used at present; although an activity based costing (ABC) system is being considered. Details of the three products for a typical period are:
Hours per unit Materials Production
Labour hours Machine hours Cost per unit ($) Units
Product D 1/2 1.5 20 1,750
Product C 1.5 1 12 1,250
Product P 1 3 25 7,000
Direct labour costs $6 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is $28 per machine hour.
Required:
(a) Calculate the cost per unit for each product using traditional methods, absorbing overheads on the basis of machine hours. (a) Traditional cost per unit
D C P
Material 20 12 25
Labour ($6/hour) 3 9 6
Direct costs 23 21 31
Production overhead
($28/machine hour) 42 28 84
Total production cost /unit 65 49 115
Don’t know how he got $42 production overheads as labour hrs per unit is 1*1/2=0.5 Can you please help
$42 = (1.5 * $28)
Machine hours per unit: 1.5
Overhead absorption rate: $28 per machine hour
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