Question

Binegar 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, R58G and R09O, about which it has provided the following data:

	R58G	R09O
Direct materials per unit	$15.90	$52.40
Direct labour per unit	$1.30	$27.30
Direct labour hours per unit	0.10	2.10
Annual production	30,000	10,000

The company's estimated total manufacturing overhead for the year is $1,617,600 and the company's estimated total direct labour-hours for the year is 24,000.

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
Assembling products (DLHs)	$696,000
Preparing batches (batches)	252,000
Product support (product variations)	669,600
Total	$1,617,600

	Expected Activity
	R58G	R09O	Total
DLHs	3,000	21,000	24,000
Batches	528	1,152	1,680
Production variations	1,056	1,176	2,232

(Appendix 7A) The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to:

M

Answer 1

• Working

A	Estimated Total Manufacturing Overhead	$      1,617,600.00
B	Estimated Total Direct Labor hours	24,000
C = A/B	Traditional Overhead allocation rate	$                    67.40

• Answer

Working		R58G	R090
A	Annual Production	30,000	10,000
B	DLHs per unit	0.1	2.1
C = A x B	Total DLHs	3,000	21,000
D	Traditional Overhead allocation rate	$                    67.40	$                   67.40
E = C x D	Manufacturing Overhead allocated	$          202,200.00	$     1,415,400.00
F = E/A	Overhead cost per unit	$                       6.74 = ANSWER	$                 141.54

The manufacturing overhead that would be applied to a unit of product R58G under the company's traditional costing system is closest to: $ 6.74 per unit