Exercise 3-9 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4] Harriso
ID: 2364194 • Letter: E
Question
Exercise 3-9 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4]Harrison Company makes two products and uses a conventional costing system in which a single plant-wide 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
$13.30
$22.00
Direct labor cost per unit
$6.70 $2.30
Direct labor-hours per unit
0.47 - Rascon
0.24 - Parcel
Number of units produced
25,000 Rascon
86,000 Parcel
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These products are customized to some degree for specific customers.
Requirement 1:
The company's manufacturing overhead costs for the year are expected to be $770,882. Using the-company's conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Requirement 2:
Management is considering an activity-based 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)
3,500
3,600
7,100
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Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
Requirement 1: The company's manufacturing overhead costs for the year are expected to be $576,000. Using the-company's conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.) Rascon Parcel Number of units produced 20,000 80,000 Direct labor-hours per unit 0.40 0.20 Total direct labor-hours 8,000 16,000 Total Manufacturing OH $576,000 Total direct labor-hours (8,000 + 16,000) 24,000 Predetermined overhead rate $576,000 / 24,000 $24.00 per DLH Rascon Parcel Direct Materials $13.00 $22.00 Direct labor $6.00 $3.00 Manufacturing OH applied 0.40 × $24.00 $9.60 0.20 × $24.00 $4.80 Unit Product Cost $28.60 $29.80 Requirement 2: Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year: Rascon Parcel Total Engineering design time(in hours) 3,000 3,000 6,000 Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.) Predetermined Overhead Rate 576,000 / 2 = $288,000 / 24,000 = $12.00 per DLH Engineering Design = $288,000 / 6,000 = $48.00 per Design hour Rascon Parcel Direct Materials $13.00 $22.00 Direct labor $6.00 $3.00 Manufacturing OH applied 0.40 × $12.00 $4.80 0.20 × $12.00 $2.40 Design $7.201 $48.002 Unit Product Cost $31.0 $29.20 1Rascon 3,000 / 20,000 = 0.15 x $48.00 = $7.20 2Parcel 3,000 / 80,000 = 0.0375 x $48.00 = $1.80
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