Orange County Engine Parts Inc. (OCEP) produces three products—pistons, valves, and cams—for the heavy equipment industry. OCEP has a very simple production process and product line and uses a single...

Orange County Engine Parts Inc. (OCEP) produces three products—pistons, valves, and cams—for the heavy equipment industry. OCEP has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 2016 is as follows:

The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for OCEP is $184,320.

a. Determine the plantwide factory overhead rate.

b. Determine the factory overhead and direct labor cost per unit for each product.

c. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 2016. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place.

d. What does the report in (c) indicate to you?