Nash Company Manufactured Two Products, a and B, During April

Essay

Nash Company manufactured two products, A and B, during April. For purposes of product costing, an overhead rate of $2.50 per direct-labor hour was used, based on budgeted annual factory overhead of $500,000 and 200,000 budgeted annual direct-labor hours, as follows:
$\begin{array}{llr}& \text { Budgeted} & \text { Budgeted }\\ &\text {Overhead } & \text { Hours }\\ \text {Department 1 } &\$ 300,000 & 100,000 \\ \text { Department 2 } &200,000 &100,000 \\ \text { Total } &\$ 500,000 & 200,000\\\end{array}$

The number of labor hours required to manufacture each of these products was:
$$\begin{array} { l c c } & \text { Product A } & \text { Product B } \\\text { Department 1 } & \mathbf { 3 } & 1 \\\text { Department 2 } & 1 & \mathbf { 3 } \\\text { Total } & 4 & 4\end{array}$$
During April, production units for products A and B were 1,000 and 3,000, respectively.
Required:
(a) Using a plant-wide overhead rate, what are total overhead costs assigned to products A and B, respectively?
(b) Using departmental overhead rates, what are total overhead costs assigned to products A and B, respectively?
(c) Assume that materials and labor costs per unit of Product A are $10 and that the selling price is established by adding 40% of absorption costs to cover profit and selling and administrative expenses. What difference in selling price would result from the use of departmental overhead rates?