MBA560 Financial and Managerial Accounting: Module 6 Test Problem 2 - Melrose, Inc

MBA560 Financial and Managerial Accounting
Module 6 Test Problem 2.
The management accountant at Melrose, Inc. provided the following estimated costs for producing 5,000 units of a specialty product manufactured by the firm: Direct Materials 10,000 Direct Labor (1 hour per unit) 50,000 Unit level support costs 10,000 Batch level support costs 5,000 Product level support costs 3,000 Facility level support costs 7,000 The company believes that direct labor hours are the most appropriate cost driver for assigning overhead costs to its product.

Required:
1) Compute the predetermined overhead rate for this company.
2) Compute the specialty product's total estimated cost per unit.
3) Why do firms assign overhead costs using a predetermined overhead rate instead of assigning actual costs?
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