Question

Traditional Product Costing Versus Activity-Based Costing
High Country Outfitters, Inc., makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The accounting department has identified the following overhead costs and cost drivers for next year:

Overhead Item	Expected Costs	Cost Driver	Maximum   Quantity
Setup costs	$1,216,800	Number of setups	7,200
Ordering costs	312,000	Number of orders	60,000
Maintenance	1,200,000	Number of machine hours	80,000
Power	120,000	Number of kilowatt hours	600,000

Total predicted direct labor hours for next year is 60,000. The following data are for two recently completed jobs:

	Job 201	Job 202
Cost of direct materials	$15,000	$16,500
Cost of direct labor	$20,625	$72,750
Number of units completed	1,125	915
Number of direct labor hours	270	330
Number of setups	18	22
Number of orders	24	45
Number of machine hours	540	450
Number of kilowatt hours	270	360

a. Determine the unit cost for each job using a traditional company-wide overhead rate based on direct labor hours.
Round rate to two decimal places.
Overhead rate per direct labor hour $Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

	Job 201	Job 202
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Overhead	Answer	Answer
Total job cost	Answer	Answer
Units	Answer	Answer
Per unit cost	$Answer	$Answer

b. Determine the unit cost for each job using ABC. Activity-based overhead rates:

Round cost answers to the nearest whole number, when needed.

Round cost per unit to two decimal places, if needed.

Setup costs	$Answer per setup
Ordering costs	$Answer per order
Maintenance costs	$Answer per machine hour
Power	$Answer per kwh

	Job 201	Job 202
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Overhead
Setup cost	Answer	Answer
Ordering costs	Answer	Answer
Maintenance costs	Answer	Answer
Power	Answer	Answer
Total job costs	$Answer	$Answer
Units produced	Answer	Answer
Cost per unit	$Answer	$Answer

Answer 1

a. Overhead rate per direct labor hour = Total expected costs/Estimated direct labor hours = $2848800/60000 = $47.48 per direct labor hour.

	Job 201	Job 202
Direct materials	15000	16500
Direct labor	20625	72750
Overhead	12820	15668
	(270 x 47.48)	(330 x 47.48)
Total job cost	48445	104918
Units	1125	915
Per unit cost	43.06	114.66

b.

Setup costs	$169.00	per setup
Ordering costs	$5.20	per order
Maintenance costs	$15.00	per machine hour
Power	$0.20	per kilowatt hours

Working:

Overhead Item	Expected Costs $	Cost Driver Usage	Activity Rate $
Setup costs	1216800	7200	169.00	per setup
Ordering costs	312000	60000	5.20	per order
Maintenance costs	1200000	80000	15.00	per machine hour
Power	120000	600000	0.20	per kilowatt hours

	Job 201	Job 202
Direct materials	15000	16500
Direct labor	20625	72750
Overhead
Setup cost	3042	3718
Ordering costs	125	234
Maintenance costs	8100	6750
Power	54	72
Total job costs	46946	100024
Units produced	1125	915
Cost per unit	41.73	109.32