Question
In: Accounting
Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its...
Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data:
| W82R | L48S | |||
| Direct materials per unit | $ | 19.70 | $ | 62.50 |
| Direct labor per unit | $ | 18.40 | $ | 56.00 |
| Direct labor-hours per unit | 0.70 | 2.40 | ||
| Annual production (units) | 36,000 | 20,800 | ||
The company's estimated total manufacturing overhead for the year is $3,347,900 and the company's estimated total direct labor-hours for the year is 75,120.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
| Activities and Activity Measures | Estimated Overhead Cost |
|
| Supporting direct labor (DLHs) | $ | 676,080 |
| Setting up machines (setups) | 807,760 | |
| Parts administration (part types) | 1,864,060 | |
| Total | $ | 3,347,900 |
| Activities | W82R | L48S | Total | |
| Supporting direct labor | 25,200 | 49,920 | 75,120 | |
| Setting up machines | 882 | 2,630 | 3,512 | |
| Parts administration | 2,120 | 1,950 | 4,070 | |
Required:
a. Determine the unit product cost of each of the company's two products under the traditional costing system.
b. Determine the unit product cost of each of the company's two products under activity-based costing system.
(For all requirements, round your intermediate calculations and final answers to 2 decimal places.)
W824 L48S
a. Unit Produced Cost ______ ________
b. Unit Produced Cost _______ __________
Solutions
Expert Solution
Part-a
| Calculation of Unit Product Cost | ||
| Under Traditional Costing | ||
| W82R | L48S | |
| Direct Material | $19.70 | $62.50 |
| Direct Labor | $18.40 | $56.00 |
| Applied Overhead | $31.20 | $106.97 |
| Product Cost per Unit | $69.30 | $225.47 |
Working Note
| Predeteermmined Overhead Rate= Estimated Manufacturing Overhead /Total Direct Labour Hour |
| =3347900/75120=$44.57 |
| Working Note-1 Computation of Overhead assigned each Unit | |||||
| Overhead Assigned |
Activity Driver ( in Hour) (A) |
Predeterminde OH Rate (B) |
total Overhead Cost (c=AXB) |
Units Produced (D) |
OH Cost per Unit (C/D) |
| W82R | 25200 | $44.57 | $1,123,164.00 | 36000 | $31.20 |
| (0.70*36000) | |||||
| L48S | 49920 | $44.57 | $2,224,934.40 | 20800 | $106.97 |
| (2.40*20800) |
Part-b
| Calculation of Unit Product Cost | ||
| Under ABC Costing | ||
| W82R | L48S | |
| Direct Material | $19.70 | $62.50 |
| Direct Labor | $18.40 | $56.00 |
| Applied Overhead | $38.91 | $93.62 |
| Product Cost per Unit | $77.01 | $212.12 |
Working Note
| Working Note Computation of Activity Rate | |||||
| ABC Costing | |||||
| Activity |
Overhead (A) |
Cost Driver Quantity (B) | Allocation Rate A/B) | ||
| Supporting Direct Labour | $676,080.00 | 75,120.00 | DLH | $9.00 | DLH |
| Setting up Machine | $807,760.00 | 3,512.00 | Setup | $230.00 | Setup |
| Parts Administration | $1,864,060.00 | 4,070.00 | Part Types | $458.00 | Part Types |
| total | $3,347,900.00 |
| Assigning Overhead Cost Product Model | ||||||||
| Using ABC Method | ||||||||
| W82R | L48S | |||||||
|
Activity Based Overhead
Rate (A) |
Cost Driver Incurred (B) |
OH Allocated (AXB) |
Cost Driver Incurred ( C) |
OH Allocated (AXC) |
||||
| Supporting Direct Labour | $9.00 | DLH | 25200 | DLH | $226,800.00 | 49920 | DLH | $449,280.00 |
| Setting up Machine | $230.00 | Setup | 882 | Setup | $202,860.00 | 2630 | Setup | $604,900.00 |
| Parts Administration | $458.00 | Part Types | 2120 | Part Types | $970,960.00 | 1950 | Part Types | $893,100.00 |
| total Overhead | $1,400,620.00 | $1,947,280.00 | ||||||
| No. Of Units | 36000 | 20800 | ||||||
| Overhead per Unit | $38.91 | $93.62 |
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