Question

Poma Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R78S and N32Y, about which it has provided the following data:

	R78S	N32Y
Direct materials per unit	$ 27.20	$ 54.70
Direct labor per unit	$ 8.80	$ 22.00
Direct labor-hours per unit	0.4	1.0
Annual production (units)	35,000	10,000

The company's estimated total manufacturing overhead for the year is $1,427,040 and the company's estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Assembling products (direct labor-hours)	$ 672,000
Preparing batches (batches)	255,840
Product support (product variations)	499,200
Total	$ 1,427,040

	Expected Activity
	R78S	N32Y	Total
Direct labor-hours	14,000	10,000	24,000
Batches	816	1,152	1,968
Product variations	840	408	1,248

The unit product cost of product N32Y under the activity-based costing system is closest to:

A: $136.16

B: $136.00

C: $76.70

D: $59.30

Answer 1

Solution:

Option B ($ 136.00 ) is the correct answer

Computation of unit product for Product N32Y cost based on activity based costing

Working notes :

Computation of activity rates:

Activity	Activity cost	Activity driver	Activity driver rate
Assembling products	$ 6,72,000	24,000 hours (Number of direct labour hours)	$ 28.00 ( $ 6,72,000 / 24,000 hrs)
Preparing batches	$ 2,55,840	1,968 batches (Number of batches)	$ 130.00 ($ 2,55,840 / 1968 batches)
Product Support	$ 4,99,200	1248 variations (Number of product variations)	$ 400 ($ 4,99,200/ 1248 variations)

Computation of Unit product cost of Product N32Y based on activity based costing

Particulars	N32Y
Direct material cost	$ 5,47,000 (10,000 units*$ 54.70)
Direct labor	$ 2,20,000 (10,000 units*$ 22.00)
Assembling products	$ 2,80,000 (10,000 hours *$ 28)
Preparing batches	$ 1,49,760 (1152 batches*$ 130)
Product variations	$ 1,63,200 (408 variations*$ 400)
Total cost incurred (A)	$ 13,59,960
Number of units (B)	10,000 units
Unit Cost per unit (A / B)	$ 135.99 ($ 13,59,960 / 10,000 units)

Unit cost per unit of Product N32Y as per Activity based costing is closest $ 136.00 ($ 135.99 rounded off to $ 136.00)

Conclusion :

From the above we can understand that OPTION B satisfies the given requirement in the question whereas remaining Options A,C,D do not satisfy the given requirement in question.

Thankyou !!!!