apter 02 Homework Help Exercise 2A-3 Activity-Based Absorption Costing as an Alt

Question

apter 02 Homework Help Exercise 2A-3 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing [LO2- 5] Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below. Delu Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production $ 58.00 $ 16.00 46.00 $ 13.20 0.70 DLHS 10,000 units 50,000 units 1.40 DLRS 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 $546,000o Estimated total manufacturing overhead Estimated total direct labor-hours 77,000 DLHS Required: 1. Determine the unit produ?t 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: Estinated overhead tivit Supporting direct labor (direct labor-hours) Batch setups (setups) 385,000 7,000 70,000 77,000 300 102,000 200 100

Explanation / Answer

Solution 1:

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

= $546,000 / 77000 = $7.09 per DL hour

Solution 2:

Computation of Unit product cost - Traditional costing Particulars Deluxe Standard Direct material $58.00 $46.00 Direct labor $16.00 $13.20 Manufacturing overhead $4.96 $9.93 Unit Product cost $78.96 $69.13

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