Question

In: Accounting

Q1.ABC Corporation manufactures two products, Product S and Product W. Product W is of fairly recent...

Q1.ABC Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin. Product W is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half 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 SR 750,000 in manufacturing overhead costs and produce 15,000 units of Product W and 65,000 units of Product S during the current year. Unit cost for materials and direct labor are:

Product s

Product w

Direct material

15

25

Direct labor

10

13


Required:

a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.

The company expects to work 50,000 direct labor-hours during the current year of which 20,000 for product s and 30,000 for product w.
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:

Activity cost pools

Estimated overhead costs

Expected activity

Total

Product s

Product w

Machine set up

250,000

900

1,600

2,500

Purchase orders

50,000

550

200

750

Machine hours

105,000

3,500

10,500

14,000

Maintenance requested

345,000

1,400

1,600

3,000

Total

750,000

6,350

13,900

20,250

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

Solutions

Expert Solution

  • All working forms part of the answer
  • Working

Activity cost pools

Estimated overhead costs

Total of Expected Activity

Activity rates

[A]

[B]

[C = A/B]

Machine set up

$ 250,000.00

                    2,500

$              100.00

Purchase orders

$    50,000.00

                       750

$                 66.67

Machine hours

$ 105,000.00

                 14,000

$                   7.50

Maintenance requested

$ 345,000.00

                    3,000

$              115.00

Total

$ 750,000.00

--Allocation of Overheads to Product S

Activity cost pools

Activity rates

Expected Activity

Overheads allocated

[A]

[B]

[C = A x B]

Machine set up

$                  100.00

                          900

$           90,000.00

Purchase orders

$                    66.67

                          550

$           36,668.50

Machine hours

$                       7.50

                      3,500

$           26,250.00

Maintenance requested

$                  115.00

                      1,400

$        161,000.00

Total Overheads allocated

$        313,918.50

Total Units of Product S

                    20,000

Overhead cost per unit

$                   15.70

--Allocation of Overheads to Product W

Activity cost pools

Activity rates

Expected Activity

Overheads allocated

[A]

[B]

[C = A x B]

Machine set up

$                            100.00

                1,600

$      160,000.00

Purchase orders

$                              66.67

                    200

$        13,334.00

Machine hours

$                                 7.50

              10,500

$        78,750.00

Maintenance requested

$                            115.00

                1,600

$      184,000.00

Total Overheads allocated

$      436,084.00

Total Units of Product S

                 30,000

Overhead cost per unit

$                14.54

  • Answers

Product S

Product W

Direct Material

$                    15.00

$                   25.00

Direct Labor

$                    10.00

$                   13.00

Overhead allocated

$                    15.70

$                   14.54

Total Unit product Cost = ANSWER

$ 40.70 or $ 41 =answer

$ 52.54 or $ 53 = answer


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