Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 1 hour of direct labor time for Product S. Product W is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $722,201 in manufacturing overhead costs and produce 13,700 units of Product W and 68,500 units of Product S during the current year. Unit cost for materials and direct labor are:

	Product S			Product W
Direct material	$	18		$	30
Direct labor		12			21

Required:

a-1. Compute the predetermined overhead rate under the current method of allocation.

a-2. Determine the unit product cost of each product for the current year.

b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

			Total Activity
Activity Cost Pool	Total Cost		Product S	Product W	Total
Machine setups required	$	262,240	900	2,080	2,980
Purchase orders issued		46,209	519	114	633
Machine-hours required		218,640	7,470	10,750	18,220
Maintenance requests issued		195,112	734	948	1,682
	$	722,201

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Bottom of Form

Answer 1