Question

 

Puget World, Inc., manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:

	Direct Labor- Hours per Unit	Annual Production	Total Direct Labor-Hours
Model N 800 XL	2.5	3,500 units	8,750
Model N 500	1.3	12,500 units	16,250
			25,000

Additional information about the company follows:

a.	Model N 800 XL requires $65 in direct materials per unit, and Model N 500 requires $25.
b.	The direct labor wage rate is $16 per hour.
c.	The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.
d.	Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

 

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Machine setups	Number of setups	$	510,000
Special processing	Machine-hours		230,000
General factory	Direct labor-hours		1,410,000
		$	2,150,000

 

	Expected Activity
Activity Measure	Model N 800 XL	Model N 500	Total
Number of setups	200	300	500
Machine-hours	20,000	0	20,000
Direct labor-hours	8,750	16,250	25,000

 

Required information

Required:

1.	Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.

a.	Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)

    

b.	Compute the unit product cost of each model. (Round your answers to 2 decimal places.)

Required information

2.

Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products.

   

a(1)	Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

      

a(2)	Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system. (Round your answers to 2 decimal places.)

     

b.	Compute the unit product cost of each model. (Round your answers to 2 decimal places.)

Answer 1