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Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It...

Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 70,000 units of EX300 and 13,500 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

EX300 TX500 Total
Direct materials $ 376,325 $ 172,550 $ 548,875
Direct labor $ 130,000 $ 47,500 $ 177,500

The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:

Activity
Activity Cost Pool
(and Activity Measure)		 Manufacturing
Overhead		 EX300 TX500 Total
Machining (machine-hours) $ 175,875 100,000 67,500 167,500
Setups (setup hours) 262,500 125 400 525
Product-level (number of products) 202,400 1 1 2
General factory (direct labor dollars) 86,975 $ 130,000 $ 47,500 $ 177,500
Total manufacturing overhead cost $ 727,750

Required:

1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system.

1-b. Using the plantwide rate, compute the unit product cost for each product.

2-a. Compute the activity rate for each activity cost pool.

2-b. Using the activity rates, compute the unit product cost for each product.

Solutions

Expert Solution

Oh rate as per DLH:
Total expected overheads 7,27,750
Divide: Total DLC 1,77,500
OH rate as % of DLC 410%
OH allocated
EX300 TX 500
DLC 1,30,000 47,500
Multiply: Oh rate 410% 410%
Oh allocated 533000 1,94,750
Total cost per unit
EX300 TX 500
DMC 3,76,325 1,72,550
DLC 1,30,000 47,500
Oh allocated 533000 1,94,750
Total cost 10,39,325 4,14,800
Divide: Units 70,000 13,500
Cost per unit 14.85 30.73
ABC:
Activity rate
Actvity OH Drivers Rate
Mchining 175875 167500 1.05
Setups 262500 525 500
Product Level 202400 2 1,01,200
General factory 86975 177500 49.00%
OH allocated
Activity Rate EX 300 TX 500
Driver OH cost Driver OH cost
Mchining 1.05 100000 1,05,000 67500 70,875
Setups 500 125 62,500 400 2,00,000
Product Level 101200 1 1,01,200 1 1,01,200
General factory 49% 130000 63,700 47500 23,275
Total Overheads 332400 395350
Total cost per unit
EX300 TX 500
DMC 3,76,325 1,72,550
DLC 1,30,000 47,500
Oh allocated 332400 3,95,350
Total cost 8,38,725 6,15,400
Divide: Units 70,000 13,500
Cost per unit 11.98 45.59

ekkarill92 answered 2 years ago
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