Question

DiveIn, Inc. manufactures two products, Goggles and Snorkels. Goggles are the more complex of the two products, requiring more direct labor time and more machine time per unit than Snorkels. Manufacturing overhead is currently assigned to the products on the basis of direct labor hours. The company has gathered some activity information and is interested in the differences between its present costing method and activity-based costing. All overheard costs should be allocated to the products. The overhead cost pools and activity drivers are as follows: Activity Pool Overhead Costs Total Driver Usage Setup $256,000 3,200 setups Materials Purchasing 110,000 2,750 purchase orders Machining/Fabricating 136,000 27,200 machine hours Total Overheard Costs $502,000 Other product information is as follows: Snorkels Goggles Number of units produced 40,000 10,000 Direct materials cost $ 15.00 per unit $ 30.00 per unit Direct labor cost $ 5.25 per unit $ 14.00 per unit Direct labor hours 30,000 20,000 Setups 400 2,800 Purchase orders 2,070 680 Machine hours 8,000 19,200 Required a. Using the traditional method of allocating overhead based on direct labor hours, compute the unit product cost of Goggles and Snorkels: i. Determine the overhead rate per direct labor hour. ii. Allocate overhead to each product based on the direct labor hours used by each. iii. Divide the total overhead allocated to each product by the number of products produced to obtain the overhead cost per unit. iv. Add the overhead cost per unit to the direct materials and direct labor costs per unit to obtain the unit product cost. b. Using an activity-based costing approach, compute the unit product cost of Goggles and Snorkels: i. Determine the three activity rates. ii. Allocate overhead to each product based on the activity drivers used by each. Total the three activity allocations to arrive at the total overhead allocated to each product. iii. Divide the total overhead allocated to each product by the number of products produced to obtain the overhead cost per unit. iv. Add the overhead cost per unit to the direct materials and direct labor costs per unit to obtain the unit product cost. c. Why do your answers to a(iv) and b(iv) differ? Be specific

Answer 1