Question

Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:

	Rascon		Parcel
Direct materials cost per unit	$	15	$	7
Direct labor cost per unit	$	2.90	$	3.80
Direct labor-hours per unit		.20		.25
Number of units produced		11,000		47,000

These products are customized to some degree for specific customers.

    

Required:
1.	The company's manufacturing overhead costs for the year are expected to be $376,650. Using the company's traditional costing system, compute the unit product costs for the two products. (Round your intermediate calculations and final answers to 2 decimal places.)

       

2.

Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

	Rascon	Parcel	Total
Engineering design time (in hours)	4,300	4,300	8,600

Compute the unit product costs for the two products using the proposed activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

Direct labour hours required for Rascon = 11,000 units * 0.2 hours per unit = 2,200

Direct labour hours required for Parcel = 47,000 units * 0.25 hours per unit = 11,750

Total number of direct labour hours = 2,200 + 11,750 = 13,950

Predetermined overhead rate = Manufacturing overhead / Number of direct labour hours

= $376,650 / 13,950

= $27 per direrct labour hour

	Rascon	Parcel
Direct materials	$15	$7
Direct labour	$2.9	$3.8
Manufacturing Overhead	$5.4 (0.2*$27)	$6.75 (0.25*$27)
Product cost per unit	$23.3	$17.55

2.

Overhead allocated on the basis of direct labour hours = $376,650 / 2 = $188,325

Pre determined overhead cost per direct labour hour = $188,325 / 13,950

= $13.5

Predetermined overhead cost per engineering hour = $188,325 / 8,600

= $21.90

	Rascon	Parcel
Direct materials	$15	$7
Direct labour	$2.9	$3.8
Manufacturing Overhead	$11.26 [(0.2*$13.5)+(4,300*$21.9/11,000)]	$5.375 [(0.25*$13.5)+(4,300*$21.9/47,000)]
Product cost per unit	$29.16	$16.175