Question

wardsworth, inc., manufactures and sells two products: product I9 and product Z9. 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 I9 700 6.0 4,200

products Z9 900 8.0 7,200

total direct labor hours 11,400

the direct labor rate is $26.00 per DLH. the direct materials cost per unit for each product is given below:

direct materials cost per unit

product I9 $226.10

product Z9 $151.20 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 I9 product Z9 total

labor related DLHS $463,980 4,200 7,200 11,400

machine setups setups 9,814 300 400 700

order size MHs 105,792 4,400 4,300 8,700

$579,586

the unit product cost of product Z9 under the company's traditional costing method in which all overhead is allocated on the basis of direct labor hours is closet to: and

the unit product cost of product I9 under activity based costing is closet to:and

the unit product cost of product Z9 under activity based costing is closet to:   

Answer 1

Solution 1:

Predetermined overhead rate = Estimated overhead / Estimated direct labor hour = $579,586 / 11400 = $50.84 per direct labor hour

Computation of Unit Product cost - Z9
Particulars	Per unit cost
Direct material	$151.20
Direct labor (8*$26)	$208.00
Overhead (8*$50.84)	$406.72
Unit Product Cost	$765.92

Solution 2 & 3:

Computation of activity rate, Allocation of Overhead and computation of overhead cost per unit - Activity Based Costing
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	I9		Z9
					Usage	Allocated Costs	Usage	Allocated Costs
Labor related	$463,980.00	Direct labor hour	11400	$40.70	4200	$170,940.00	7200	$293,040.00
Machine setups	$9,814.00	Machine setups	700	$14.02	300	$4,206.00	400	$5,608.00
Order size	$105,792.00	Machine hours	8700	$12.16	4400	$53,504.00	4300	$52,288.00
Total	$579,586.00					$228,650.00		$350,936.00
Nos of units						700		900
Overhead cost per unit						$326.64		$389.93

Computation of Unit Product cost - I9
Particulars	Per unit cost
Direct material	$226.10
Direct labor (6*$26)	$156.00
Overhead	$326.64
Unit Product Cost	$708.74

Computation of Unit Product cost - Z9
Particulars	Per unit cost
Direct material	$151.20
Direct labor (8*$26)	$208.00
Overhead	$389.93
Unit Product Cost	$749.13