Question

Fleurant, Inc., manufactures and sells two products: Product W2 and Product P8. 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 W2 600 6 3,600 Product P8 900 4 3,600 Total direct labor-hours 7,200 The direct labor rate is $42.10 per DLH. The direct materials cost per unit is $208.60 for Product W2 and $145.30 for Product P8. 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 W2 Product P8 Total Labor-related DLHs $ 223,576 3,600 3,600 7,200 Production orders orders 19,038 530 430 960 Order size MHs 333,386 3,930 3,730 7,660 $ 576,000 If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product W2 would be closest to: Multiple Choice $261.14 per unit $186.31 per unit $480.00 per unit $118.99 per unit

Answer 1

Overhead Per Unit under traditional costing system

Total Estimated Overhead Cost = $576,000 (refer note 1)

Allocation base = Estimated Direct Labor Hours = 7,200 DLHs

Overhead Allocation Rate = Total Estimated Overhead Cost / Estimated Direct Labor Hours

= $576,000 / 7,200 = $80.00 per direct labor hour

Calculation of Overhead Per Unit for Product W2

Assigned Overhead Per Unit for Product W2 = Direct Labor Hour Required for Product W2 per unit 6 DLHs x Overhead Allocation Rate $80.00

= $480 per unit

Hence, the correct option is $480 per unit

Note 1 – Expected Total Overheads

Cost Pool	Expected Costs
Labor related	$223,576
Production Orders	$19,038
Order Size	$333,386
Total Overheads	$576,000

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