Question

Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $180,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period’s operations appear below:

	Product C			Product D
Estimated volume		3,950	units			3,150	units
Direct labor-hours per unit		1.50	hours			1.60	hours
Direct materials cost per unit	$	13.10			$	25.50
Direct labor cost per unit	$	15.00			$	16.00

Required:

a-1. Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.)

a-2. Determine the unit product cost of each product for the current year. (Round your intermediate calculations and final answers to 2 decimal places.)

b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

	Estimated		Expected Activity
Activity Cost Pools	Overhead Cost		Product C		Product D		Total
Machine setups	$	12,490	140		150		290
Purchase orders		76,140	880		1,220		2,100
Order size		92,280	5,925		5,040		10,965
Total	$	180,910

Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

a1
Estimated manufacturing overhead costs	180910
/ Estimated Direct labor-hours	10965	=(3950*1.50)+(3150*1.60)
Predetermined overhead rate	16.50	per DLH
a2
	Product C	Product D
Direct materials cost per unit	13.10	25.50
Direct labor cost per unit	15.00	16.00
Overhead per unit:
16.50 X 1.50	24.75
16.50 X 1.60		26.40
Unit product cost	52.85	67.90
b
	Product C	Product D
Unit product cost	50.33	71.07

Workings for b:
Activity rate:
Machine setups	43.07	=12490/290
Purchase orders	36.26	=76140/2100
Order size	8.42	=92280/10965
Product C:
Machine setups	6029.80	=140*43.07
Purchase orders	31908.80	=880*36.26
Order size	49888.50	=5925*8.42
Total overhead	87827.10
Divide by units	3950
Overhead per unit	22.23
Product D:
Machine setups	6460.50	=150*43.07
Purchase orders	44237.20	=1220*36.26
Order size	42436.80	=5040*8.42
Total overhead	93134.50
Divide by units	3150
Overhead per unit	29.57
	Product C	Product D
Direct materials cost per unit	13.10	25.50
Direct labor cost per unit	15.00	16.00
Overhead per unit	22.23	29.57
Unit product cost	50.33	71.07