Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-
ID: 2342047 • Letter: E
Question
Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]
Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:
Xactive
Pathbreaker
Direct materials per unit
$
65.60
$
51.80
Direct labor cost per unit
$
19.00
$
13.80
Direct labor-hours per unit
1.4
DLHs
1
DLHs
Estimated annual production and sales
33,000
units
83,000
units
The company has a conventional 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
$2,687,360
Estimated total direct labor-hours
129,200
DLHs
Required:
1-a. Compute the predetermined overhead rate based on direct labor-hours.
1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.
2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:
Estimated Overhead Cost
Expected Activity
Activity Cost Pools and Activity Measures
Xactive
Pathbreaker
Total
Supporting direct labor (direct labor-hours)
$
988,380
46,200
83,000
129,200
Batch setups (setups)
1,008,000
290
190
480
Product sustaining (number of products)
602,240
1
1
2
General factory (machine-hours)
88,740
3,300
8,300
11,600
Total manufacturing overhead cost
$
2,687,360
Determine the activity rate for each of the four activity cost pools.
3. Using the activity rates and other data from the problem, determine the unit product cost of each product.
Xactive
Pathbreaker
Direct materials per unit
$
65.60
$
51.80
Direct labor cost per unit
$
19.00
$
13.80
Direct labor-hours per unit
1.4
DLHs
1
DLHs
Estimated annual production and sales
33,000
units
83,000
units
Explanation / Answer
Solution 1a:
predetermined overhead rate = Estimated overhead / Estimated direct labor hours
= $2,687,360 / 129200 = $20.80 per direct labor hour
Solution 1b:
Solution 2 and 3:
Computation of unit product cost - Traditional costing Particulars Xactive Pathbreaker Direct material per unit $65.60 $51.80 Direct labor per unit $19.00 $13.80 Manufacturing overhead cost per unit (Direct labor hour per unit * Overhead rate per direct labor hour) $29.12 $20.80 Unti Product Cost $113.72 $86.40Related Questions
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