The Management Accountant at Morrison, Inc The Company Believes That Direct Labor Hours Are the Most

Essay

The management accountant at Morrison, Inc. provided the following estimated costs for producing 2,500 units of a specialty product manufactured by the firm: $$\begin{array} { | l | r | } \hline \text { Direct Materials } & \$ 10,000 \\\hline \text { Direct Labor (1 hour per unit) } & 5,000 \\\hline \text { Unit-level support costs } & 10,000 \\\hline \text { Batch level support costs } & 5,000 \\\hline \text { Product-level support costs } & 3,000 \\\hline \text { Facility-level support costs } & 7,000 \\\hline\end{array}$$
The company believes that direct labor hours are the most appropriate cost driver for assigning overhead costs to its product.
Required:
1) Compute the predetermined overhead rate for this company.
2) Compute the specialty product's total estimated cost per unit.
3) Why do firms assign overhead costs using a predetermined overhead rate instead of assigning actual costs?