Question

25

Chhom, Inc., manufactures and sells two products: Product F9 and Product U4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product F9	400	2.0	800
Product U4	200	1.0	200
Total direct labor-hours			1,000

The direct labor rate is $24.40 per DLH. The direct materials cost per unit is $258 for Product F9 and $215 for Product U4.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product F9	Product U4	Total
Labor-related	DLHs	$	34,600	800	200	1,000
Production orders	orders		54,940	200	200	400
Order size	MHs		111,950	3,400	2,900	6,300
		$	201,490

The overhead applied to each unit of Product U4 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Solution:

Chhom, Inc.,

Calculation of Activity Rate for each Activity driver as per Activity Based Costing
Activity	Overhead Cost	Activity Driver	Total No. of Activities	Activity Rate = (Activity Overhead cost/No. of Units)
Labor Related	$                   34,600.00	Direct Labor Hours	1000	$                                     34.60
Production Orders	$                   54,940.00	No. of Orders	400	$                                   137.35
Order Size	$                 111,950.00	MHs	6300	$                                     17.77
		None
Total	$                 201,490.00

Overhead applied to each unit of Product U4
Activity	Total No. of Activities for Product U4 (a)	Activity Rate (b)	Total Cost of Activity (c) = (a) x (b)
Labor Related	200	$                              34.60	$             6,920.00
Production Orders	200	$                           137.35	$          27,470.00
Order Size	2900	$                              17.77	$          51,533.00
Total Overhead costs			$          85,923.00
Expected production of U4			200 units
Overhead applied for each unit	85923/200	$                           429.62

Therefore the overhead applied to each unit of Product U4 under activity based costing is closed to $430