For 2015, Bakers Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per unit. The selling price of the product is $20.00. The estimated manufacturing overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $300,000 and actual machine hours are 50,000. What is the profit margin earned if each unit requires two machine-hours?

The profit margin earned if each unit requires two machine-hours is 25%

Explanation:

For computing the profit margin, first, we have to compute the estimated overhead rate per unit which is shown below:

Estimated Overhead rate = (Estimated manufacturing overhead costs) : (estimated machine hours)

= ($240,000) : (40,000 machine hours)

= $6

Now the profit per margin would equal to

= Selling price per unit - direct cost per unit - overhead cost per unit * number of required machine hours

= $20 - $3 - $6 * 2

= $5

Now the profit margin would equal to

= (Profit per unit) : (selling price per unit) * 00

= ($5 : $20) * 100

= 25%