Question

Rocky Mount Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below: Xactive Pathbreaker Direct materials costs per unit $ 65.00 $ 50.00 Direct labor cost per unit $ 21.00 $ 14.00 Direct labor hours per unit 1.5 DLH 1 DLH Estimated annual production and sales 25,000 Units 45,000 Units Average labor cost per hour $ 14.00 The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead $ 2,062,500 Estimated total direct labor-hours 82,500 Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours. 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Estimated overhead costs Expected Activity Activity Cost Pools and Activity Measures Xactive Pathbreaker Total Supporting direct labor (direct labor-hours) $ 860,000 37,500 45,000 82,500 Batch setups (setups) $ 580,000 250 150 400 Product sustaining (number of products) $ 550,000 1 1 2 General factory (machine-hours) $ 72,500 2500 7500 10,000 Total manufacturing overhead cost $ 2,062,500 Determine the activity rate for each of the four activity cost pools. 3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

Answer 1

1-a Predetermined rate = Estimated Overheads/Estimated Hours
=2062500/82500
25	per hour
Calculation of units product cost
	Xactive	Pathbreaker
Direct material per unit	65	50
Direct labor cost per unit	21	14
Overheads	37.50	25
Unit cost	123.5	89
Activity rate = Overheads/Total Activity
Cost Pool	Overhead Amount	Estimated Activity
		Xactive	Pathbreaker	Total	Activity Rate
Supporting Direct labor	860000	37500	45000	82500	10.42424242
Batch Setups	580000	250	150	400	1450
Product Sustaining	550000	1	1	2	275000
General Factory	72500	2500	7500	10000	7.25
Total	2062500
Calculation of units product cost
	Xactive	Pathbreaker
Direct material per unit	65.00	50.00
Direct labor cost per unit	21.00	14.00
Overheads
Supporting Direct labor	390,909.09	469,090.91
Batch Setups	362,500.00	217,500.00
Product Sustaining	275,000.00	275,000.00
General Factory	18,125.00	54,375.00
Total Overheads	1,046,534.09	1,015,965.91
Per unit	41.86	22.58
Unit Product cost	127.86	86.58