Question

nole, inc manufactures and sells two products: product W8 and product N0. 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 W8 100 9.0 900

produdct N0 1,000 11.0 11,000

total direct labor hours 11,900

the direct labor rate is $17.40 per DLH. the direct materials cost per unit for each product is given below:

direct materials cost per units

product W8 $176.40

product N0 $280.50

the company is considering adopting an activity based costing system with the following activity cost pools, activity measures, and expected activity:

expected activity

activity cost pools activity measures estimated overhead cost product W8 product N0 total

labor related DLHs $ 461,720 900 11,000 11,900

machine setups setups 25,865 300 400 700

order size MHs 796,220 4,000 4,200 8,200

1,283,805

1. if the company allocates all of its overhead based on direct labor hours using its traditional costing method, the predetermined overhead rate would be closet to: $38.80 per DLH; $36.95 per DLH; $97.10 per DLH; $107.88 per DLH; and

2. the overhead applied to each unit of product W8 under activity based costing is closet to: $3,884.00 per unit : $1,167.10 per unit: $97092 per unit: $4,344.05 per unit. and

3. which of the following statements concerning the unit product cost of product N0 is true

a. the unit product cost of product N0 under traditional costing is less that its unit product cost under activity based costing by $3,494.65;

b. the unit product cost of product N0 under traditional costing is greater than its unit product cost under activity based costing by $3,494.65:

c. the unit product cost of product N0 under traditional costing is less than its unit product under activity based costing by $337.28:

d. the unit product cost of product N0 under traditional costing is greater than its unit product cost under activity based costing by $337.28.

Answer 1

1. if the company allocates all of its overhead based on direct labor hours using its traditional costing method, the predetermined overhead rate would be closet to

Predetermine overhead rate = 1283805/11900 = 107.88 per hour

So answer is d) $107.88 per DLH

2. the overhead applied to each unit of product W8 under activity based costing is closet to:

Labour related (461720/11900*900)	34920
Machine setup (25865/700*300)	11085
Order size (796220/8200*4000)	388400
Total overhead	434405
Units	100
Ovehead cost per unit	4344.05

So answer is d) $4344.05

3. which of the following statements concerning the unit product cost of product N0 is trueL

Unit product cost under traditional costing = 1283805/11900*11000 = 1186711/1000 = 1186.71

Unit product cost under activity based

Labour related (461720/11900*11000)	426800
Machine setup (25865/700*400)	14780
Order size (796220/8200*4200)	407820
Total overhead	849400
Units	1000
Ovehead cost per unit	849.4

Difference = 1186.71-849.40 = 337.31

So answer is d. the unit product cost of product N0 under traditional costing is greater than its unit product cost under activity based costing by $337.28.