Question

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 _______ __________

Answer 1

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