Question

Sandstorm Manufacturing Inc. makes two types of industrial component parts—the LE100 and the UL600. It annually produces 58,000 units of LE100 and 12,300 units of UL600.The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

   

	LE100		UL600		Total
Direct materials	$	364,325	$	160,550	$	524,875
Direct labor	$	118,000	$	41,500	$	159,500

   

The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:

  

Activity Cost Pool (and Activity Measure)	Manufacturing Overhead		Activity
			LE100		UL600		Total
Machining (machine-hours)	$	209,300		88,000		61,500		149,500
Setups (setup hours)		131,100		65		280		345
Product-level (number of products)		83,870		1		1		2
General factory (direct labor dollars)		54,230	$	118,000	$	41,500	$	159,500
Total manufacturing overhead cost	$	478,500

  

Required:

1-a.	Compute the plantwide overhead rate that would be used in the company’s conventional cost system. (Round your final answer to 2 decimal places.)

  
  

1-b.	Using the plantwide rate, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  

2-a.	Compute the activity rate for each activity cost pool. (Round your Machining and General factory activity rates to 2 decimal places.)

       
      

2-b.	Using the activity rates, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

       

Answer 1

	Requirement 1-a:
	Computation of Plantwide overhead rate based on conventional cost system:
A	Total Manufacturing Overhead Cost	$478,500
B	Direct Labor Dollars	$159,500
C	Plantwide Overhead Rate (A/B)	$3
	Requirement 1-b:
	Computation of Unit Product Cost using Plantwide Overhead Rate:
		LE100	UL600
A	Plantwide Overhead Rate	$3	$3
B	Direct Labor Dollars	$118,000	$41,500
C	Overheads Allocated (A*B)	354000	124500
D	Direct Materials	364325	160550
E	Total Product Cost (B+C+D)	$836,325	$326,550
F	Units Produced	58,000	12,300
G	Unit Product Cost (E/F)	$14.42	$26.55
	Requirement 2-a:
	Computation of Activity Rate for each activity cost pool:
		Machining	Setups	Product level	General Factory
A	Manufacturing Overhead	209300	131100	83870	54230
B	Activity Measure	149500	345	2	159500
C	Activity Rate per Cost Pool (A/B)	1.40	380.00	41935.00	0.34
	Requirement 2-b:
	Computation of Unit Product Cost using Activity Rates:
		LE100	UL600
A	Machine Hours	88000	61500
B	Machining Costs (A*1.4)	123200	86100
C	Setup Hours	65	280
D	Setup Costs (C*380)	24700	106400
E	Number of Products	1	1
F	Product Level Costs (E*41935)	41935	41935
G	Direct Labor Dollars	118000	41500
H	General Factory Overheads (G*0.34)	40120	14110
I	Total Overheads Allocated (B+D+F+H)	229955	248545
J	Direct Materials	364325	160550
K	Total Product Costs (G+I+J)	712280	450595
L	Units Produced	58,000	12,300
M	Unit Product Cost (K/L)	$12.28	$36.63