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 2 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 $1,120,981 in manufacturing overhead costs and produce 14,600 units of Product W and 73,000 units of Product S during the current year. Unit cost for materials and direct labor are:

	Product S			Product W
Direct material	$	18		$	29
Direct labor		7			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	$	606,060	910	2,420	3,330
Purchase orders issued		55,309	585	194	779
Machine-hours required		206,580	7,880	10,900	18,780
Maintenance requests issued		253,032	678	944	1,622
	$	1,120,981

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

Answer 1

Computation of Manufacturing OH ( ABC)
					Product S	Product W
ABC system	Estimated cost (a)		Cost driver (b)	Cost per driver (c=a/b)	No. of Driver (d)	Allocated OH (cXd)	No. of Driver ( e)	Allocated OH (c X e)
Machien Setup	606,060		3,330	182.00	910	165,620	2420	440,440
Purchase Order Issued	55,309		779	71.00	585	41,535	194	13,774
Machine Hour Required	206,580		18,780	11.00	7880	86,680	10900	119,900
Maintainance Request Issued	253,032		1,622	156.00	678	105,768	944	147,264
	1,120,981					399,603		721,378
Number if Units						73,000		14,600
Cost / Unit						5.47		49.41

2.Computation Unit Manufacturing Cost
Particulars	Product S		Product W
Direct material	$18.00		$29.00
Direct labor	$7.00		$21.00
Manufacturin overheads	$5.47		$49.41
manufacturing cost per unit	$30.47		$99.41