For 2018, Winters Manufacturing uses machineminushours as the only overhead costminusallocation base. The direct cost rate is $ 2 per unit. The selling price of the product is $ 27. The estimated manufacturing overhead costs are $ 220 comma 000 and estimated 20 comma 000 machine hours. The actual manufacturing overhead costs are $ 225 comma 000 and actual machine hours are 25 comma 000. What is the profit margin earned if each unit requires two machineminus hours?

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13 April, 18:54

For 2018, Winters Manufacturing uses machineminushours as the only overhead costminusallocation base. The direct cost rate is $ 2 per unit. The selling price of the product is $ 27. The estimated manufacturing overhead costs are $ 220 comma 000 and estimated 20 comma 000 machine hours. The actual manufacturing overhead costs are $ 225 comma 000 and actual machine hours are 25 comma 000. What is the profit margin earned if each unit requires two machineminus hours?

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Demetrius Church · Answer 1

Profit margin = $3 per unit

Explanation:

The profit margin earned is the difference between selling price and the manufacturing cost

Manufacturing cost per unit = variable cost + fixed overhead cost per unit

overhead absorption rate = estimated overhead/estimated machine hours

=$220,000/20,000 machine hours

= $11 per hour

Manufacturing cost per unit = 2 + (11 * 2) = $24 per unit

Profit margin = 27 - 24

= $3 per unit