Stillicum Corporation makes ultra light-weight backpacking tents. Data concernin

Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below: Deluxe Standard Direct materials per unit $ 51.00 $ 39.00 Direct labor per unit $ 9.00 $ 7.60 Direct labor-hours per unit 0.70 DLHs 1.40 DLHs Estimated annual production 10,000 units 50,000 units The company has a traditional 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 $ 595,000 Estimated total direct labor-hours 77,000 DLHs Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools: Expected Activity Activity Cost Pools and Activity Measures Estimated Overhead Cost Deluxe Standard Total Supporting direct labor (direct labor-hours) $ 462,000 7,000 70,000 77,000 Batch setups (setups) 81,000 200 100 300 Safety testing (tests) 52,000 30 70 100 Total manufacturing overhead cost $ 595,000 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

Explanation / Answer

Solution 1:

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor hours

= $595,000 / 77000 = $7.73 per direct labor hour

Solution 2:

Computation of Unit Product Cost - Stillicum Corporation Particulars Deluxe Standard Direct material per unit $51.00 $39.00 Direct labor per unit $9.00 $7.60 Manufacturing overhead per unit $5.41 $10.82 Unit product cost $65.41 $57.42

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