Question

High-Calibre Products Corporation makes two products: titanium rims and posts. Data regarding the two products follow:

	Direct Labour- Hours per Unit	Annual Production
Rims	0.50	21,000	units
Posts	0.25	85,000	units

Additional information about the company follows:

1. Rims require $18 in direct materials per unit, and posts require $11.
2. The direct labour wage rate is $17 per hour.
3. Rims are more complex to manufacture than posts, and they require special equipment.
4. The ABC system has the following activity cost pools:

		Estimated Overhead Cost	Activity
Activity Cost Pool	Activity Measure		Rims	Posts	Total
Machine setups	Number of setups	$22,990	105	85	190
Special processing	Machine-hours	$193,200	4,200	0	4,200
General factory	Direct labour-hours	$412,750	10,500	21,250	31,750

Required:

1. Compute the activity rate for each activity cost pool.

2. Determine the unit cost of each product according to the ABC system, including direct materials and direct labour. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

Ans. 1	*Calculations for Activity rate :
	*Activity rate =   Estimated overhead / Total expected activity
	Activity cost pool	Estimated overhead (a)	Total expected activity (b)	Activity rates (a/b)
	Machine setups	$22,990	190	setups	$121.00	per setup
	Special processing	$193,200	4200	machine hours	$46.00	Per machine hour
	General factory	$412,750	31750	Direct labor hours	$13.00	Per direct labor hour
Ans. 2		Rims	Posts
	Direct materials cost per unit	$18	$11
	Direct labor cost per unit	$8.50	$4.25
	Overhead cost per unit	$16.31	$3.37
	Unit Product Cost	$42.81	$18.62
	WORKING NOTES :
Step 1:	*Calculations of Overhead cost assigned and overhead cost per unit :
		RIMS	POSTS
	Activity cost pool	Expected activity	Activity rate	Cost	Expected activity	Activity rate	Cost
		per product (a)	(b)	Assigned (a*b)	per product (a)	(b)	Assigned (a*b)
	Machine setups	105	$121	$12,705	85	$121	$10,285
	Special processing	4200	$46	$193,200	0	$46	$0
	General factory	10500	$13	$136,500	21250	$13	$276,250
	Total Manufacturing Overhead			$342,405			$286,535
	*Cost assigned = Expected activity per product * Activity rates
	*Calculations of Overhead cost per unit :
		Rims	Posts
	Total overhead cost assigned (A)	$342,405	$286,535
	Production (B)	21000	85000
	Overhead cost per unit (A/B)	$16.31	$3.37
Step 2:	*Calculations of Direct labor cost per unit :
	Direct labor cost per unit   = Direct labor wage rate * Direct labor hours per unit
	Rims	$17 * 0.50	$8.50	per unit
	Posts	$17 * 0.25	$4.25	per unit