Question

Exercise 3-4 Contrast ABC and Conventional Product Costs [LO3-4]

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 39,000 units next year and Product L is expected to sell 7,800 units. A unit of either product requires 0.3 direct labor-hours.

The company's total manufacturing overhead for the year is expected to be $1,193,400.

Required:
1-a.		The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? (Round your answers to 2 decimal places.)   HOME ACCESSIBILITY PREVIEW Product H Product L Overhead cost per unit + 1-b. Compute the total amount of overhead cost that would be applied to each product. Product H Product L Total Total overhead cost + 2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $596,700 assigned to Product H and $596,700 assigned to Product L.        If this suggestion is followed, how much overhead cost per unit would be assigned to each product? (Round your answers to 2 decimal places.)    HOME ACCESSIBILITY PREVIEW Product H Product L Overhead cost per unit + The full content of this question did not transfer to your assignment. Please try again. reload The full content of this question did not transfer to your assignment. Please try again. reload

Answer 1

		Total direct labor hours
			units	per unit	total hrs
		product H	39,000	0.3	11700
		product l	7,800	0.3	2340
		Total direct labor hours			14040
		overhead rate = 1193400/14040
			85
		overhead allocated
		product h	11700*85		994500
		product l	2340*85		198900
		per unit
		product h 994500/39000			25.5
		product l   198900/7800			25.5
					product H	product L
	1-a)	overhead cost per unit			25.5	25.5
					product H	product L
	1-b)	total overhead cost			994500	198900
	2)	per unit
		product h 596,700/39000			15.3
		product l   596700/7800			76.5
					product H	product L
		overhead cost per unit			15.3	76.5