Question

National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.

Model	Annual Sales in Units
High F	10,500
Great P	16,500

National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

	High F			Great P
Direct materials	$	38.50		$	25.90
Direct labor	$	18.10		$	13.70

Budget factory overhead:
Engineering and Design	2,500	engineering hours	$	412,500
Quality Control	12,930	inspection hours		270,690
Machinery	33,810	machine hours		574,090
Miscellaneous Overhead	26,490	direct labor hours		158,700
Total			$	1,415,980

National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities:

	High F	Great P
Engineering and design hours	1,010	1,490
Quality control inspection hours	5,690	7,240
Machine hours	20,330	13,480
Labor hours	12,050	14,440

Using activity-based costing, applied miscellaneous overhead for the Great P model per unit is:

• $5.24.

• $9.19.

• $13.87.

• $14.90.

• $43.20.

Answer 1

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National Inc.
Calculation of ABC rates
Activity cost pool	Amount $	Note
Miscellaneous Overhead	158,700.00	A
Direct labor hours	26,490.00	B
Overhead rate	5.99	C=A/B
Cost Allocation	Amount $
Direct labor hours used by Great P model	14,400.00	D
Overhead rate	5.99	See C
Overhead applied	86,256.00	E=D*C
Number of units	16,500.00	F
Overhead applied per unit	5.24	G=E/F
So answer is $ 5.24.