Question

You have been given the following information:

	Expected Production	Direct Labor-Hours (DLH) Per Unit	Total Direct Labor-Hours
Product M	700	7.0	4,900
Product N	100	4.0	400
Total direct labor-hrs			5,300

The direct labor rate is $24.20 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product M	$279.00
Product N	$251.00

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

			Expected Activity
Activity Cost Pools	Activity Measures	Estimated Overhead Cost	Product M	Product N	Total
Labor-related	DLHs	$132,394	4,900	400	5,300
Product testing	No. of Tests	17,318	400	300	700
General factory	Machine Hrs	81,522	3,000	3,300	6,300
		$231,234

a. Determine the unit product cost of each product under the company's traditional costing method where total overhead cost is allocated based on DLH used for each product.
b. Determine the unit product cost of each product under the activity-based costing method.
c. What is your conclusion?

In all computations involving dollars, round off your answer to the nearest whole cent.

Answer 1