Question

Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data:

	P85G	C43S
Direct materials per unit	$36.50	$63.10
Direct labour per unit	$20.80	$31.20
Direct labour hours per unit	0.80	1.20
Annual production	35,000	10,000

The company's estimated total manufacturing overhead for the year is $2,264,000 and the company's estimated total direct labour-hours for the year is 40,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for externalreports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Supporting direct labour (DLHs)	$1,160,000
Setting up machines (setups)	288,000
Parts administration (part types)	816,000
Total	$2,264,000

	Expected Activity
	P85G	C43S	Total
DLHs	28,000	12,000	40,000
Setups	1,480	920	2,400
Part types	1,880	840	2,720

(Appendix 7A) The total cost of a unit of product P85G under the company's traditional costing system is closest to:

Answer 1

• Working

A	Estimated Total Manufacturing Overhead	$      2,264,000.00
B	Estimated Total Direct Labor hours	40,000
C = A/B	Traditional Overhead allocation rate	$                    56.60

Working		P85G	C43S
A	Annual Production	35,000	10,000
B	DLHs per unit	0.8	1.2
C = A x B	Total DLHs	28,000	12,000
D	Traditional Overhead allocation rate	$                    56.60	$                   56.60
E = C x D	Manufacturing Overhead allocated	$      1,584,800.00	$        679,200.00
F = E/A	Overhead cost per unit	$                    45.28	$                   67.92

• Answer

	P85G	C43S
Direct Materials per unit	$                    36.50	$                   63.10
Direct Labor cost per unit	$                    20.80	$                   31.20
Overhead cost per unit	$                    45.28	$                   67.92
Total cost of a unit	$                  102.58	$                 162.22