During June, Assembly Department no. 4 of Hot Tech produced 15,000 model 201 computer keyboards. Assembly of these units required 1,875 hours of direct labor at a cost of $45,000, direct materials costing $121,000, and 400 hours of machine time. Based on an analysis of overhead costs at the beginning of the year, overhead is applied to keyboards using the following formula:
Overhead 5 120% of Direct Labor Cost 1 $350 per Machine Hour
a. Compute the total amount of overhead cost applied to the 15,000 keyboards.
b. Compute the per-unit cost of manufacturing these keyboards.
c. Briefly explain why the department might use two separate activity bases in applying overhead costs to one type of product.
d. Identify at least two types of overhead cost pools that might be “driven” by each of the two cost drivers indicated in this situation.
e. What appears to be the primary driver of overhead costs in the manufacture of keyboards?
f. Compute the gross profit that will result from the sale of 4,000 of these keyboards at a sales price of $40 each.