# Eaton Manufacturing Company produced 1,600 units of inventory in January 2014. It expects to...

## Question:

Eaton Manufacturing Company produced 1,600 units of inventory in January 2014. It expects to produce an additional 10,400 units during the remaining 11 months of the year. In other words, total production for 2014 is estimated to be 12,000 units. Direct materials and direct labor costs are $64 and$52 per unit, respectively. Eaton Company expects to incur the following manufacturing overhead costs during the 2014 accounting period.

 Production supplies \$ 10,000 Supervisor salary 160,000 Depreciation on equipment 65,000 Utilities 20,000 Rental fee on manufacturing facilities 45,000

Required:

a. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is the number of units.

b. Determine the cost of the 1,600 units of product made in January.

Direct materials:

Direct Labor:

Total:

A traditional costing system is one way a company allocates overhead to units produced. Under a traditional costing system, all overhead is one cost pool with one cost driver. These are used to calculate an activity rate which is then used to allocate overhead costs to units.

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#### Question a.

The predetermined overhead rate is calculated using the following formula.

Predetermined Overhead Rate: Formula & Example

from

Chapter 1 / Lesson 16
10K

Overhead costs can be very tricky to estimate but it is necessary to do so when job planning. There are a few ways to accomplish this and this lesson will discuss some of the ways to effectively compute a predetermined overhead rate.