Question

Cabat Company manufactures two products, Product C and Product D. The company estimated it would incur $181,910 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		4,000	units			3,200	units
Direct labor-hours per unit		1.60	hours			1.20	hour
Direct materials cost per unit	$	13.60			$	26.10
Direct labor cost per unit	$	12.40			$	8.80

Requried:
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. (Do not round your intermediate calculations. Round your final answer 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:

   

Activity Cost Pools	Estimated Overhead Costs		Expected Activity
			Product C	Product D	Total
Machine setups	$	12,590	150	160	310
Purchase orders		76,440	900	1,240	2,140
General factory		92,880	6,400	3,840	10,240
Total	$	181,910

   

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.)

unit product cost for product c=

unit product cost for product d=

Answer 1

a-1) Total Direct Labor Hours = Direct Labor hours for product C+Direct Labor Hours for product D

= (4,000 units*1.60 hrs)+(3,200 units*1.20 hrs)

= 6,400 hrs+3,840 hrs = 10,240 hrs

Predetermined Overhead Rate = Total Manufacturing Overhead Costs/Total Direct Labor Hours

= $181,910/10,240 hrs = $17.76 per hour

a-2) Calculation of unit product cost (Amounts in $)

Particulars	Product C	Product D
Direct Materials cost per unit	13.60	26.10
Direct Labor cost per unit	12.40	8.80
Manufacturing Overhead per unit	($17.76465 per hour*1.60 hrs) = 28.42	($17.76465 per hour*1.20 hrs) = 21.32
Unit Product Cost	54.42	56.22

b) Calculation of Activity Rate (Amounts in $)

Activity Cost Pools	Estimated Overhead Costs (A)	Total Expected Activity (B)	Activity Rate (A/B)
Machine setups	12,590	310 setups	40.6129 per setup
Purchase orders	76,440	2,140 orders	35.7196 per order
General factory	92,880	10,240 hours	9.0703 per hour

Allocation of Overhead to each product (Amounts in $)

Particulars	Product C	Product D
1) Machine Setups	($40.6129*150) = 6,092	($40.6129*160) = 6,498
2) Purchase Orders	($35.7196*900) = 32,148	($35.7196*1,240) = 44,292
3) General Factory	($9.0703*6,400) = 58,050	($9.0703*3,840) = 34,830
4) Total Manufacturing Overhead (1+2+3)	96,290	85,620
5) Estimated Volume	4,000 units	3,200 units
6) Manufacturing Overhead per unit (5/6)	24.07	26.76

Calculation of unit product cost (Amounts in $)

Particulars	Product C	Product D
Direct Materials cost per unit	13.60	26.10
Direct Labor cost per unit	12.40	8.80
Manufacturing Overhead per unit	24.07	26.76
Unit Product Cost	50.07	61.66