Question

PART ONE:

National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.

Model	Annual Sales in Units
High F	10,400
Great P	16,400

National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

	High F			Great P
Direct materials	$	38.40		$	25.80
Direct labor	$	18.00		$	13.60

Budget factory overhead:
Engineering and Design	2,480	engineering hours	$	434,000
Quality Control	12,910	inspection hours		309,120
Machinery	33,790	machine hours		540,160
Miscellaneous Overhead	26,470	direct labor hours		132,200
Total			$	1,415,480

National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities:

	High F	Great P
Engineering and design hours	1,000	1,480
Quality control inspection hours	5,680	7,230
Machine hours	20,320	13,470
Labor hours	12,040	14,430

Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is:

• $4.39.

• $10.56.

• $13.13.

• $15.79.

• $43.87

PART TWO

Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities:

	Alpha			Zeta
Units produced		250			24,750
Batch size (units)		10			500
Total direct labor hours		1,250			61,875
Cost per setup	$	2,250		$	2,250

Assume the cost per setup remains at $2,250 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be: (Round intermediate calculations and your final answers to the nearest cent.)

	Activity Based Costing			Volume Based Costing
A)	$	450.00		$	9.60
B)	$	560.00		$	8.60
C)	$	90.00		$	10.60
D)	$	1.87		$	3.74
E)	None of these answer choices is correct.

Answer 1

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National Inc.
Calculation of ABC rates
Particulars	Amount $	Note
Miscellaneous Overhead	132,200.00	A
Labor hours	26,470.00	B
ABC rate	4.99	C=A/B
Great P model	Amount $
Labor hours used	14,430.00	E
ABC rate for Miscellaneous Overhead	4.99	See C
Total Cost assigned	72,068.23	F=E*C
Number of units	16,400.00	G
Costs per unit	4.39	H=F/G
So answer is $ 4.39.
Pasternik Company	Alpha
Units produced	250.00	I
Batch size (units)	25.00	J
Number of Batches	10.00	K=I*J
Cost per set up	2,250.00	L
Total cost of set up	22,500.00	M=K*L
Cost per unit	90.00	N=M/L
So answer option C $ 90 and $ 9.60.