Question

Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an average month for the two products follow.

	V-1			V-2
Units produced		10,000			1,000
Direct materials cost per unit	$	2		$	4
Machine hours per unit		1			2
Production runs per month		80			40

Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow.

Machine depreciation	$	51,000
Setup labor		24,000
Material handling		15,600
Total	$	90,600

Required:

a. Compute the unit costs for the two products V-1 and V-2 using the current costing system at Upriver (using machine hours as the allocation basis). (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. Compute the unit costs for the two products V-1 and V-2 using the proposed ABC system at Upriver. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Unit Cost

V-1 V-2

a.Using current costing system

b.Using proposed ABC system

Answer 1

Req 1.
OH rate per MH
Total Overheads			90600
Divide: Total MH (10000*1+1000*2)	12000
OH rate per MH			7.55
Overheads applied and OH cost per unit
			V-1	V-2
Total MH used		10000	2000
Multiply: OH rate per MH	7.55	7.55
Total OH applied		75500	15100
Divide: Units producted	10000	1000
OH cost per unit		7.55	15.1
Total cost per unit
			V-1	V-2
Material cost per unit	2	4
Add: Oh cost per unit		7.55	15.1
Total cost per unit		9.55	19.1
Req 2.
Activity		OH cost	Driver		Activity rate
Machine Depreciation	51000	12000	MH	4.25	Per MH
Setup labour	24000	120	Setups	200	Per setup
Material Handling	15600	24000	Material cost	0.65	per dollar of DMC
OH cost allocated and OH cost per unit
Activity		Rate	Product V-1	Product V2
			Driver	OH cost	Driver	OH cost
Machine Depreciation	4.25	10000	42500	2000	8500
Setup labour	200	80	16000	40	8000
Material Handling	0.65	20000	13000	4000	2600
	Total Overheads		71500		19100
	Divide: Units produced	10000		1000
	OH cost per unit		7.15		19.1
Total cost per unit
			V-1	V-2
Material cost per unit	2	4
Add: Oh cost per unit		7.15	19.1
Total cost per unit		9.15	23.1