Question

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

	Xactive			Pathbreaker
Direct materials per unit	$	65.20		$	51.40
Direct labor cost per unit	$	18.60		$	13.40
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		29,000	units		79,000	units

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead	$2,439,840
Estimated total direct labor-hours	119,600	DLHs

Required:

1-a. Compute the predetermined overhead rate based on direct labor-hours.

1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

	Estimated Overhead Cost			Expected Activity
Activity Cost Pools and Activity Measures				Xactive			Pathbreaker			Total
Supporting direct labor (direct labor-hours)	$	891,020			40,600			79,000		119,600
Batch setups (setups)		836,000			270			170		440
Product sustaining (number of products)		632,360			1			1		2
General factory (machine-hours)		80,460			2,900			7,900		10,800
Total manufacturing overhead cost	$	2,439,840

Determine the activity rate for each of the four activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

Answer 1

1-a)	predetermined overhead rate
	Formula:
	Estimated total MOH/Estimated total DLH's
	2,439,840/119600
	20.4	per hr	answer
1-b)				X-active	pathbreaker
	Direct materials per unit			65.2	51.4
	Direct labor cost per unit			18.6	13.4
	overhead cost per unit			28.56	20.4
	unit product cost			112.36	85.2	answer
	working notes:
	overhead
	direct labors used			29000*1.4	79000*1
				40600	79,000
	overhead rate per hr			20.4	20.4
	total overhead (rate*DLH)			828240	1611600
	units produced			29,000	79,000
	overhead cost per unit			28.56	20.4
	or overhead cost per unit = DLH's per unit *overhead rate
2)	Activity rate for the four activity cost pools
						answer
	Activity cost pools & Activity mea			overhead	total	Activity
				cost	activity	rate
				A	B	c=a/b
	Supporting Direct labor			891,020	119,600	7.45	per DLH's
	Batch setups			836,000	440	1900	per setup
	product sustaining			632,360	2	316180	per product
	General factory			80,460	10,800	7.45	per MH's
	total manufacturing overhead			2,439,840
	overhead rate per unit
					X-active	pathfinder	total
	Supporting Direct labor				302470	588550	891020
	Batch setups				513000	323000	836000
	product sustaining				316180	316180	632360
	General factory				21605	58855	80460
	total manufacturing overhead				1153255	1286585	2439840
	units produced				29000	79000
	Cost per unit				39.77	16.29
3)				X-active	pathbreaker
	Direct materials per unit			65.20	51.40
	Direct labor cost per unit			18.60	13.40
	overhead cost per unit			39.77	16.29
	unit product cost			123.57	81.09	answer