Question

Carlton's Kitchens makes two types of pasta makers: Strands and Shapes. The company expects to manufacture 80,000 units of Strands, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 20,000 units of Shapes, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Strands will use 160,000 machine hours and Shapes will require 40,000 machine hours. Historically, the company has used the traditional allocation method and applied overhead at a rate of $20.84 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown:

Machine Setups	$67,500
Machine Processing	4,000,000
Material Requisitions	100,000
Total Overhead	$4,167,500

The cost driver for each cost pool and its expected activity is shown:

	Strands	Shapes	Total
Machine Setups	90	180	270
Machine Hours	160,000	40,000	200,000
Parts Requisitions	80	120	200

A. What is the per-unit cost for each product under the traditional allocation method? Round your answers to two decimal places.

	Strands	Shapes
Total per unit cost	$	$

B. What is the per-unit cost for each product under ABC costing? Round your answers to two decimal places.

	Strands	Shapes
Total cost	$	$

C. Compared to ABC costing, was each product's overhead under- or overapplied?

D. By how much was overhead under- or overapplied for each product? Round your answers to two decimal places.

	Overhead	Amounts
Strands	Overapplied	$
Shapes	Underapplied	$

Answer 1