Morris Company Makes One Product, and It Expects to Incur

question 91

Essay

Morris Company makes one product, and it expects to incur a total of $600,000 in indirect (overhead) costs during 2014. Production of the product for the year is expected to be: $$\begin{array} { | l | l |r | r r | r | } \hline & { \text { Quarter } } \\\hline & 1 & 2 & 3 & 4 \\\hline \begin{array} { l } \text { Estimated } \\\text { production in } \\\text { units }\end{array} & 40,000 & 15,000 & & 27,000 & 38,000 \\\hline\end{array}$$
Required:
1) Calculate a predetermined overhead rate based on the number of units of product expected to be made during 2014.
2) Assuming that direct materials and direct labor costs are $10 and $15, respectively, determine the total cost per unit using the overhead rate you calculated in part a.

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Definitions:

Observed Time

The actual amount of time recorded for a task or process operation based on direct observation.

Futures Contract

A legally binding contract for the future transaction of goods or assets at a set price and predetermined date.

Cash Flows

Cash flows represent the net amount of cash and cash-equivalents being transferred into and out of a business, crucial for assessing its financial health, liquidity, and solvency.

Hedge

A strategy used in investing to minimize or offset the risk of adverse price movements in an asset.