Question

Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys quarried local rock, limestone, and clay from around the world and mixes, blends, and packages the processed cement for resale. OCI offers a large variety of cement types that it sells in one-kilogram bags to local retailers for small do-it-yourself jobs. The major cost of the cement is raw materials. However, the company’s predominantly automated mixing, blending, and packaging processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labour.

Some of OCI’s cement mixtures are very popular and sell in large volumes, while a few of the recently introduced cement mixtures sell in very low volumes. OCI prices its cements at manufacturing cost plus a 25% markup, with some adjustments made to keep the company’s prices competitive.

For the coming year, OCI’s budget includes estimated manufacturing overhead cost of $4,400,000. OCI assigns manufacturing overhead to products on the basis of direct labour-hours. The expected direct labour cost totals $1,200,000, which represents 100,000 hours of direct labour time. Based on the sales budget and expected raw materials costs, the company will purchase and use $10,000,000 of raw materials (mostly quarried rock, limestone, and clay) during the year.

The expected costs for direct materials and direct labour for one-kilogram bags of two of the company’s cement products appear below:

	Normal Portland			High Sulphate Resistance
Direct materials	$	9.00		$	5.80
Direct labour (0.02 hours per bag)	$	0.24		$	0.24

OCI’s controller believes that the company’s traditional costing system may be providing misleading cost information. To determine whether this is the case, the controller has prepared an analysis of the year’s expected manufacturing overhead costs, as shown in the following table:

Activity Cost Pool	Activity Measure	Expected Activity for the Year		Expected Cost for the Year
Purchasing	Purchase orders	4,000	orders	$	1,120,000
Materials handling	Number of setups	2,000	setups		386,000
Quality control	Number of batches	1,000	batches		180,000
Mixing	Mixing hours	190,000	mixing hours		2,090,000
Blending	Blending hours	64,000	blending hours		384,000
Packaging	Packaging hours	48,000	packaging hours		240,000
Total manufacturing     overhead cost				$	4,400,000

Data regarding the expected production of Normal Portland and High Sulphate Resistance cement mixes are presented below:

	Normal Portland		High Sulphate Resistance
Expected sales	160,000	kilograms	8,000	kilograms
Batch size	10,000	kilograms	500	kilograms
Setups	4	per batch	4	per batch
Purchase order size	20,000	kilograms	500	kilograms
Mixing time per 100 kilograms	3	mixing hours	3	mixing hours
Blending time per 100 kilograms	1	blending hour	1	blending hour
Packaging time per 100 kilograms	0.6	packaging hours	0.6	packaging hours

Required:

1. Using direct labour-hours as the base for assigning manufacturing overhead cost to products, do the following:

a. Determine the predetermined overhead rate that will be used during the year.

	Predetermined overhead rate ?    per DLH

b. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement. (Round your answers to 2 decimal places.)

	Normal Portland	High Sulphate Resistance
Total unit product cost:	?	?

2. Using ABC as the basis for assigning manufacturing overhead cost to products, do the following:

a. Determine the total amount of manufacturing overhead cost assigned to the Normal Portland cement and to the High Sulphate Resistance cement for the year.

	Normal Portland	High Sulphate Resistance
Purchasing	?	?
Material Handling	?	?
Quality control	?	?
Mixing	?	?
Blending	?	?
Packaging	?	?
Total Overhead Cost	?	?

b. Using the data developed in 2(a) above, compute the amount of manufacturing overhead cost per kilogram of the Normal Portland cement and the High Sulphate Resistance cement. (Round all computations to the nearest whole cent.)

	Normal Portland	High Sulphate Resistance
Total Overhead Cost Assigned (above)	?	?
Number of kg manufactured	?	?
Cost per kg	?	?

c. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement. (Round your answers to 2 decimal places.)

	Normal Portland	High Sulphate Resistance
Total Unit Product Cost	?	?

Answer 1