Question

Orange Not Apple Manufacturing Corporation J has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data:

Direct materials per unit	H16Z                                          $10.20	P25P        50.50
Direct labor per unit	8.40	25.20
Direct labor-hours per unit	0.40	1.20
Annual production (units)	30,000	10,000

The company's estimated total manufacturing overhead for the year is $1,464,480 and the company's estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures                                              Estimated Overhead Cost

Supporting direct labor (DLHs)                                                                                                                                                                                                            552,000 Setting up machines (setups)                                                                                                                                                                                                                 132,480

Parts administration (part types)                                                                                   780,000

                                                                                                                                $   1,464,480

Total

	H16Z	P25P	Total
Supporting direct labor	12,000	12,000	24,000
Setting up machines	864	240	1,104
Parts administration	600	960	1,560

Required:

1. Determine the manufacturing overhead cost per unit for H16Z under the traditional costing system.

2. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

C. Comment on the difference between the two cost systems for H16Z and how the cost can be distort under one system.

Answer 1