Question

Ellix Company manufactures two models of ultra-high fidelity speakers—the X200 model and the X99 model. Data regarding the two products follow:

Product	Direct Labor-Hours	Annual Production	Total Direct Labor-Hours
X200	0.2 DLHs per unit	15,000 units	3,000 DLHs
X99	0.4 DLHs per unit	46,000 units	18,400 DLHs
			21,400 DLHs

Additional information about the company follows:

a. Model X200 requires $44 in direct materials per unit, and model X99 requires $22.

b. The direct labor workers are paid $30 per hour.

c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.

d. Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.

e. Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

				Estimated Total Activity
Activity Cost Pool	Activity Measure	Estimated Total Cost		X200	X99	Total
Machine setups	Number of setups	$	149,100	84	126	210
Special processing	Machine-hours		328,600	1,060	0	1,060
General factory	Direct labor-hours		428,000	3,000	18,400	21,400
		$	905,700

Required:

1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.

a. Compute the plantwide predetermined overhead rate.

b. Compute the unit product cost of each model.

2. Assume that the company decides to use activity-based absorption costing to apply overhead cost to products.

a. Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based approach.

b. Compute the unit product cost of each model.

Answer 1

Solution 1-a:

Predetermined overhead rate = estimated total overhed / total direct labor hours = $905700/21400 = $42.32 per hour

Soltion 1b:

Solution 2a:

Solution 2b: