Question

1. ) Cab Company manufactures two products, Product C and Product D. The company estimated it would incur $120,100 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 400 units 3,000 units Direct labor hours per unit 1.20 hours 1.30 hour Direct materials cost per unit $4.00 $22.80 Direct labor cost per unit $12.00 $13.00 Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. 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: Expected Activity Activity Cost Pool Estimated Overhead Costs Product C Product D Total Machine setups $ 11,440 60 120 180 Purchase orders 78,000 820 1,180 2,000 General factory    30,660 480 3,900 4,380 Total $120,100 Determine the unit product cost of each product for the current period using the activity-based costing approach.

Answer 1

Req 1:
Total Labour hours:
Pproduct C (400 units @ 1.20 hours)				480
Product D(3000 units @ 1.30)				3900
Total Labour hours:				4380
Pre-determined Overhead rate: Estimated Overheads / Estimated DLH = 120,100 /4380 = $27.42 per DLH
UNIT PRODUCT COST:
			Product C	Pproduct D
Material cost			4	22.8
Labour cost			12	13
Oh cost
Product C (1.20 hours @27.42)			32.904
Product D (1.30 [email protected])				35.646
Total Unit cost			48.904	71.446
Req 2:
STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL
			Total	Expected	Activity
ACTIVITY COST POOL			Overheads	Activity	Rate
Machine setup			11,440	180	64
Purchase orders			78,000	2,000	39
General factory			30,660	4,380	7
OH assigned and OH cost per unit
			Product C		Product D
Activity		Rate	Activity inc.	OH	Activity inc.	OH
Machine setup		64	60	3840	120	7680
Purchase orders		39	820	31980	1180	46020
General factory		7	480	3360	3900	27300
		Total Overheads		39180		81000
		Number of units		400		3000
		OH cost per unit		97.95		27
UNIT PRODUCT COST:
			Product C	Pproduct D
Material cost			4	22.8
Labour cost			12	13
Oh cost			97.95	27
Unit cost			113.95	62.8