Question

P2. Busche, Inc., manufactures and sells two products: Product G4 and Product I2. 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 G4	600	7.0	4,200
	Product I2	300	4.0	1,200
	Total direct labor-hours			5,400

The direct labor rate is $23.70 per DLH. The direct materials cost per unit for each product is given below:

		Direct Materials Cost per Unit
	Product G4	$215.40
	Product I2	$259.00

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

Activity Cost Pools	Activity Measures	Estimated Overhead Cost			Expected Activity
					Product G4	Product I2	Total
Labor-related	DLHs	$	84,618		4,200	1,200	5,400
Product testing	Tests		14,042		400	300	700
Order size	MHs		334,907		3,600	3,500	7,100
		$	433,567

Required:

In all computations involving dollars in the following requirements, round off your answer to the nearest whole cent.

a. The company currently uses a traditional costing method in which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

b. How much overhead would be applied to each product under the company's traditional costing method?

c. Determine the unit product cost of each product under the company's traditional costing method.

d. Compute the activity rates under the activity-based costing system.

e. Determine how much overhead would be assigned to each product under the activity-based costing system.

f. Determine the unit product cost of each product under the activity-based costing method.

g. What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?

h. What is the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products?

Answer 1

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