1. Application rate
Given the following information, what is the predetermined overhead rate using direct labor hours as an application base?

Sales price per unit…………………$200
Direct materials per unit……………$100
Direct labor per hour………………..$30
Direct labor hour needed per unit….2 hours
Number of units to be produced…..40,000
Total estimated OH………………$200,000

2. Gross Profit
Given the following information, what is the gross profit if overhead is applied using expected direct labor hours as a base?

Sales price per unit…………………$200
Direct materials per unit……………$100
Direct labor per hour………………..$30
Direct labor hour needed per unit….2 hours
Number of units to be produced…..40,000
Total estimated OH………………$200,000

3. Additional information
Now let’s look at activities. Assume that the following activities incur various OH costs:

Cutting……………….$100,000
Assembly…………….$ 75,000
Inspection…………….$25,000

What would the gross profit per unit be given the information above (and below) using ABC?

Sales price per unit…………………$200
Direct materials per unit……………$100
Direct labor per hour………………..$30
Direct labor hour needed per unit….2 hours
Number of units to be produced…..40,000
Total estimated OH………………$200,000
Cutting necessary………………….80,000 cuts
Assembly…………………………..160,000 parts
Inspection………………………….1,000 inspections

3. Answer additional information
The activity information could be used by finding how much of each activity was used in producing one unit. Then after we find out how much of each activity cost we can find out how much the overhead cost for each unit is.

80,000 cuts / 40,000 units = it takes 2 cuts to produce one unit
160,000 parts/ 40,000 units = it takes 4 parts to make one unit
1000 insp/ 40,000 units = it takes .025 inspections to make one unit

1 cut costs = $100,000/80,000= $1.25
1 part costs=