Bolt Industries makes camping equipment. One of their products, a camping tent, is under review for its’ pricing procedures. Management is trying to determine the appropriate price of the product.
They use direct labor dollars to allocate corporate overhead. However, they would like to know if the price of the product significantly changes if they allocate overhead costs based on inspection hours.
They budgeted $700,000 in manufacturing overhead. Budgeted direct labor dollars is $1 million and budgeted inspection hours are 115,000 hours. Actual direct labor cost is $120,000. Direct Material cost is $88,500. Actual inspection hours were 96,000 hours. They made 12,000 units this year.
Determine the product cost per unit. Explain the difference.