Question

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

	Xactive			Pathbreaker
Direct materials per unit	$	64.30		$	50.50
Direct labor cost per unit	$	17.70		$	12.50
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		20,000	units		70,000	units

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead	$1,911,000
Estimated total direct labor-hours	98,000	DLHs

Required:

1-a.		Compute the predetermined overhead rate based on direct labor-hours. (Round the intermediate calculations and final answer to two decimal places.)

1-b.		Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. (Round the intermediate calculations and final answer to two decimal places.)

2.	The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

  

	Estimated Overhead Cost		Expected Activity
Activity Cost Pools and Activity Measures			Xactive	Pathbreaker	Total
Supporting direct labor (direct labor-hours)	$	686,000	28,000	70,000	98,000
Batch setups (setups)		507,500	225	125	350
Product sustaining (number of products)		654,500	1	1	2
General factory (machine-hours)		63,000	2,000	7,000	9,000
Total manufacturing overhead cost	$	1,911,000

	Determine the activity rate for each of the four activity cost pools. (Round your final answers to 2 decimal places.)

3.	Using the activity rates and other data from the problem, determine the unit product cost of each product. (Round the intermediate calculations and final answer to two decimal places.)

Answer 1

1)	predetermined overhead rate
	Formula:
	Estimated total MOH/Estimated total DLH's
	1,911,000/98,000
	19.5	per hr
1-b)				X-active	pathbreaker
	Direct materials per unit			64.3	50.5
	Direct labor cost per unit			17.7	12.5
	overhead cost per unit			27.3	19.5
	unit product cost			109.3	82.5
	working notes:
	overhead
	direct labors used			20000*1.4	70,000*1
				28000	70,000
	overhead rate per hr			19.5	19.5
	total overhead (rate*DLH)			546000	1365000
	units produced			20,000	70,000
	overhead cost per unit			27.3	19.5
	or overhead cost per unit = DLH's per unit *overhead rate
2)	Activity rate for the four activity cost pools
	Activity cost pools & Activity mea			overhead	total	Activity
				cost	activity	rate
				A	B	c=a/b
	Supporting Direct labor			686,000	98,000	7	per DLH's
	Batch setups			507,500	350	1450	per setup
	product sustaining			654,500	2	327250	per product
	General factory			63,000	9,000	7	per MH's
	total manufacturing overhead			1,911,000
	overhead rate per unit
					X-active	pathfinder	total
	Supporting Direct labor				196000	490000	686000
	Batch setups				326250	181250	507500
	product sustaining				327250	327250	654500
	General factory				14000	49000	63000
	total manufacturing overhead				863500	1047500	1911000
	units produced				20000	70000
	Cost per unit				43.18	14.96
3)				X-active	pathbreaker
	Direct materials per unit			64.30	50.50
	Direct labor cost per unit			17.70	12.50
	overhead cost per unit			43.18	14.96
	unit product cost			125.18	77.96