Question

High-Calibre Products Corporation makes two products: titanium rims and posts. Data regarding the two products follow:

	Direct Labour- Hours per Unit	Annual Production
Rims	0.70	31,000	units
Posts	0.35	135,000	units

Additional information about the company follows:

a.	Rims require $17 in direct materials per unit, and posts require $10.
b.	The direct labour wage rate is $18 per hour.
c.	Rims are more complex to manufacture than posts, and they require special equipment.
d.	The ABC system has the following activity cost pools:

		Estimated Overhead Cost	Activity
Activity Cost Pool	Activity Measure		Rims	Posts	Total
Machine setups	Number of setups	$34,510	155	135	290
Special processing	Machine-hours	$272,800	6,200	0	6,200
General factory	Direct labour-hours	$1,585,850	21,700	47,250	68,950

Required:

1.	Compute the activity rate for each activity cost pool.

2.	Determine the unit cost of each product according to the ABC system, including direct materials and direct labour. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

1.
Formula to calculate activity rate
Activity rates	Cost of activity/Volume of activity
Calculation of activity rate for each activity cost pool is shown below
Activity cost pool	Estimated overhead cost	Volume of activity	Activity rate
Machine setups	$34,510.00	290	$119.00
Special processing	$272,800.00	6200	$44.00
General factory	$1,585,850.00	68950	$23.00
2.
Calculation of overhead unit cost for each product
	Rims	Posts
Machine setups (155*119; 135*119)	$18,445.00	$16,065.00
Special processing (6200*44;0)	$272,800.00	0
General factory (21,700*23; 47,250*23)	$499,100.00	$1,086,750.00
Total overhead costs	$790,345.00	$1,102,815.00
Annual production	31000	135000
Overhead unit cost	$25.50	$8.17
Calculation of unit cost of each product
	Rims	Posts
Direct material	$17.00	$10.00
Direct labor (0.70*18; 0.35*18)	$12.60	$6.30
Overhead cost	$25.50	$8.17
Unit cost of product	$55.10	$24.47