Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hour of direct labor time for Product S. Product W is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $912,811 in manufacturing overhead costs and produce 19,000 units of Product W and 76,000 units of Product S during the current year. Unit cost for materials and direct labor are:

	Product S			Product W
Direct material	$	15		$	25
Direct labor		10			12

Required:

a-1. Compute the predetermined overhead rate under the current method of allocation.

a-2. Determine the unit product cost of each product for the current year.

b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

			Total Activity
Activity Cost Pool	Total Cost		Product S	Product W	Total
Machine setups required	$	405,000	1,620	1,620	3,240
Purchase orders issued		60,680	553	187	740
Machine-hours required		273,450	7,460	10,770	18,230
Maintenance requests issued		173,681	673	864	1,537
	$	912,811

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Complete this question by entering your answers in the tabs below.

• Req A1
• Req A2
• Req B

Compute the predetermined overhead rate under the current method of allocation. (Round your answer to 2 decimal places.)

Req A1

	Predetermined overhead rate per DLH

Determine the unit product cost of each product for the current year. (Round your answers to 2 decimal places.)

Req A2

	Unit Product Cost Product S Product W

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Round your answer to 2 decimal places.)

Req B

	Unit Product Cost Product S Product W

Answer 1

Solution a-1:

Estimated direct labor hours = 19000*3 + 76000*2 = 209,000 labor hours

Predetermined overhead rate = Estimated Overhead / direct labor hours = $912811/ 109600 = $4.37

Solution a-2:

Computation of Unit Product Cost
	Product S	Product W
Direct Materials	$15.00	$25.00
Direct Labor	$10.00	$12.00
Overhead cost per unit (Labor hour per unit*$4.37)	$8.74	$13.11
Unit product cost	$33.74	$50.11

Solution b:

Computation of Activity rates
Activity cost pool	Overhead costs	Total Activity	Activity Rate
Machine setups required	$4,05,000	3240	$125.00
Purchase orders issued	$60,680	740	$82.00
Machine hours required	$2,73,450	18230	$15.00
Maintenance requests issued	$1,73,681	1537	$113.00
Total	$9,12,811

Computation of Overhead allocated per unit
		Product S		Product W
Activity cost pool	Activity Rate	Estimated Activity	Overhead Allocated	Estimated Activity	Overhead Allocated
Machine setups required	$125.00	1620	$2,02,500	1620	$2,02,500
Purchase orders issued	$82.00	553	$45,346	187	$15,334
Machine hours required	$15.00	7460	$1,11,900	10770	$1,61,550
Maintenance requests issued	$113.00	673	$76,049	864	$97,632
Total			$4,35,795		$4,77,016
No. of units			76000		19000
Overhead per unit			5.73		25.11

Computation of Unit Product Cost
	Product S	Product W
Direct Materials	$15.00	$25.00
Direct Labor	$10.00	$12.00
Overhead cost per unit	$5.73	$25.11
Unit product cost	$30.73	$62.11