Question

Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $194,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period’s operations appear below:

	Product C			Product D
Estimated volume		4,650	units			3,850	units
Direct labor-hours per unit		2.90	hours			3.00	hours
Direct materials cost per unit	$	20.10			$	33.90
Direct labor cost per unit	$	29.00			$	30.00

Required:

a-1. Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.)

a-2. Determine the unit product cost of each product for the current year. (Round your intermediate calculations and final answers to 2 decimal places.)

b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

	Estimated		Expected Activity
Activity Cost Pools	Overhead Cost		Product C		Product D		Total
Machine setups	$	13,890	280		290		570
Purchase orders		80,340	1,160		1,500		2,660
Order size		100,680	13,485		11,550		25,035
Total	$	194,910

Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

Answer a-1.

Total direct labor-hours = Direct labor-hours per unit for Product C * Estimated volume for Product C + Direct labor-hours per unit for Product D * Estimated volume for Product D
Total direct labor-hours = 2.90 * 4,650 + 3.00 * 3,850
Total direct labor-hours = 25,035

Predetermined overhead rate = Estimated manufacturing overhead / Total direct labor-hours
Predetermined overhead rate = $194,910 / 25,035
Predetermined overhead rate = $7.79

Answer a-2.

Product C:

Manufacturing overhead cost per unit = Predetermined overhead rate * Direct labor-hours per unit
Manufacturing overhead cost per unit = $7.79 * 2.90
Manufacturing overhead cost per unit =$22.59

Unit product cost = Direct materials cost per unit + Direct labor cost per unit + Manufacturing overhead cost per unit
Unit product cost = $20.10 + $29.00 + $22.59
Unit product cost = $71.69

Product D:

Manufacturing overhead cost per unit = Predetermined overhead rate * Direct labor-hours per unit
Manufacturing overhead cost per unit = $7.79 * 3.00
Manufacturing overhead cost per unit =$23.37

Unit product cost = Direct materials cost per unit + Direct labor cost per unit + Manufacturing overhead cost per unit
Unit product cost = $33.90 + $30.00 + $23.37
Unit product cost = $87.27

Answer b.

Product C:

Unit product cost = Direct materials cost per unit + Direct labor cost per unit + Manufacturing overhead cost per unit
Unit product cost = $20.10 + $29.00 + $20.66
Unit product cost = $69.76

Product D:

Unit product cost = Direct materials cost per unit + Direct labor cost per unit + Manufacturing overhead cost per unit
Unit product cost = $33.90 + $30.00 + $25.67
Unit product cost = $89.57