Question

Kebort 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, U86Y and M91F, about which it has provided the following data:

	U86Y	M91F
Direct materials per unit	$19.80	$45.80
Direct labour per unit	$18.20	$49.40
Direct labour hours per unit	0.70	1.90
Annual production	40,000	10,000

The company's estimated total manufacturing overhead for the year is $2,541,760 and the company's estimated total direct labour-hours for the year is 47,000.

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
Direct labour support (DLHs)	$1,175,000
Setting up machines (setups)	407,960
Parts administration (part types)	958,800
Total	$2,541,760

	Expected Activity
	U86Y	M91F	Total
DLHs	28,000	19,000	47,000
Setups	2,256	658	2,914
Part types	1,034	2,162	3,196

(Appendix 7A) The unit product cost of product U86Y under the company's traditional costing system is closest to:

M

Answer 1

• Working

A	Estimated Total Manufacturing Overhead	$      2,541,760.00
B	Estimated Total Direct Labor hours	47,000
C = A/B	Traditional Overhead allocation rate	$                    54.08

Working		U86Y	M91F
A	Annual Production	40,000	10,000
B	DLHs per unit	0.7	1.9
C = A x B	Total DLHs	28,000	19,000
D	Traditional Overhead allocation rate	$                    54.08	$                   54.08
E = C x D	Manufacturing Overhead allocated	$     1,514,240.00	$     1,027,520.00
F = E/A	Overhead cost per unit	$                    37.86	$                 102.75

• Answer

	U86Y	M91F
Direct Materials per unit	$                    19.80	$                   45.80
Direct Labor cost per unit	$                    18.20	$                   49.40
Overhead cost per unit	$                    37.86	$                 102.75
Total cost of a unit	$                    75.86 = ANSWER	$                 197.95

The unit product cost of product U86Y under the company's traditional costing system is closest to: $ 75.86