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Two-Stage Allocation and Product Costing
Mets Products produces baseball caps and T-shirts. Most of the production is done by machine. Data on operations and costs for October follow:
Baseball Caps
T-Shirts
Total
Units produced
10,000
5,000
15,000
Machine-hours used
1,000
800
1,800
Direct labor-hours
200
120
320
Direct materials costs
$12,000
$8,000
$20,000
Direct labor costs
$ 4,000
$2,400
$ 6,400
Manufacturing overhead costs
$22,200
Management asks the firm's cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine hours. The analysis of overhead accounts by the cost accountant follows:
Account
Amount
Related to:
Utilities
$4,000
Machine-hours
Supplies
2,800
Materials
Machine depreciation and maintenance .
8,800
Purchasing and storing materials
3,200
Miscellaneous
3,400
Required
a. Compute the predetermined overhead rates assuming that Mets Products uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs.
b. Compute the total costs of production and the cost per unit for each of the two products for October.
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