Question

34a.

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product X0	1,500	4	6,000
Product W7	510	2	1,020
Total direct labor-hours			7,020

The direct labor rate is $30.60 per DLH. The direct materials cost per unit is $155.50 for Product X0 and $137 for Product W7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product X0	Product W7	Total
Labor-related	DLHs	$	283,078	6,000	1,020	7,020
Production orders	orders		20,048	610	810	1,420
Order size	MHs		248,334	4,110	4,210	8,320
		$	551,460

The overhead applied to each unit of Product X0 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $81.79 per unit

• $257.82 per unit

• $248.81 per unit

• $314.22 per unit

34b.

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product X0	1,500	5	7,500
Product W7	540	3	1,620
Total direct labor-hours			9,120

The direct labor rate is $33.60 per DLH. The direct materials cost per unit is $158.50 for Product X0 and $140 for Product W7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product X0	Product W7	Total
Labor-related	DLHs	$	286,078	7,500	1,620	9,120
Production orders	orders		20,348	640	840	1,480
Order size	MHs		249,894	4,140	4,240	8,380
		$	556,320

Which of the following statements concerning the unit product cost of Product W7 is true? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $166.64.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $50.55.

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $50.55.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $166.64.

Answer 1

Question 34a
Computation of ABC rate
Activity	OH Costs(Col 1)	No. of activity base(Col 2)	Activity Rate(Col 1 / Col 2)
Labor related	$                           2,83,078	7,020	$                                       40.32	per DLHs
Production order	$                              20,048	1,420	$                                       14.12	per Order
Order Size	$                           2,48,334	8,320	$                                       29.85	per MHs
Total Cost	$                           5,51,460
	Product X0	Product W7
	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
Machining	6000	$                             2,41,947.01	1020	$                                        41,130.99
Setups	610	$                                  8,612.17	810	$                                        11,435.83
Product Sustaining	4110	$                             1,22,674.61	4210	$                                     1,25,659.39
Total Overhead Cost allocated		$                             3,73,233.79		$                                     1,78,226.21
Production		1500		510
Overhead Cost per unit		$                                     248.82	per unit	$                                             349.46
So Option C is answer
Question 34b
Predtermined Overhead Rate =$556,320 / 9120 hrs =$61 per hour
Calculation of unit product cost
	Product W7
Direct Material per unit	$                              140.00
Direct labor per unit[(1620*$33.60)/540 units)	$                              100.80
Overhead Cost per unit[(1620*$61)/540 units)	$                              183.00
Unit product cost	$                              423.80
Computation of ABC rate
Activity	OH Costs(Col 1)	No. of activity base(Col 2)	Activity Rate(Col 1 / Col 2)
Labor related	$                           2,86,078	9,120	$                                       31.37	per DLHs
Production order	$                              20,348	1,480	$                                       13.75	per Order
Order Size	$                           2,49,894	8,380	$                                       29.82	per MHs
Total Cost	$                           5,56,320
	Product W7
	Activity Based usage	Activity Based usage*ABC rate
Machining	1620	$                                50,816.49
Setups	840	$                                11,548.86
Product Sustaining	4240	$                             1,26,438.01
Total Overhead Cost allocated		$                             1,88,803.37
Production		540
Overhead Cost per unit		$                                     349.64
Calculation of unit product cost
	Product W7
Direct Material per unit	$                              140.00
Direct labor per unit[(1620*$33.60)/540 units)	$                              100.80
Overhead Cost per unit[(1620*$61)/540 units)	$                              349.64
Unit product cost	$                              590.44
So the Unit product cost under Traditional costing is less than unit product cost under ABC by $166.64
So Option D is answer