Precision Manufacturing Inc. (PMI) makes two types of industrial component parts

Question

Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 56,000 units of EX300 and 12,100 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below: EX300 TX500 Total Direct materials $ 362,325 $ 158,550 $ 520,875 Direct labor $ 116,000 $ 40,500 $ 156,500 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity EX300 TX500 Total Machining (machine-hours) $ 219,750 86,000 60,500 146,500 Setups (setup hours) 113,400 55 260 315 Product-level (number of products) 54,970 1 1 2 General factory (direct labor dollars) 50,080 $ 116,000 $ 40,500 $ 156,500 Total manufacturing overhead cost $ 438,200

Required: 1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system

1-b. Using the plantwide rate, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

2-a. Compute the activity rate for each activity cost pool. (Round your Machining and General factory activity rates to 2 decimal places.)

2-b. Using the activity rates, compute the unit product cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Explanation / Answer

Question 1 - A

Overhead Rate = Total Manufacturing Overhead cost / Total Units = $438,200 / 68,100 = $6.43

Question 1 - B

Unit Cost of plant wide

Question 2- A

Activity cost pool manufacturing overhead

Total Machining = $219,750 / (86,000 + 60,500) = $1.5

Setup Cost = $113,400 / (55 + 260) = $360

Product Level = $54,970 / ( 1 + 1) = $27,485

General Factory = $50,080 / ( 116000+40500) = $0.32

Question 2- B

Activity Rate Unit product cost

Machin hour Rate = Total Machining Cost * activity rate/ Total Machine Hours

Setup Cost = Total Setup Cost * activity rate/ Total No of Setup

Product Rate = Total Product Cost* activity rate / Total Products

General Factory Rate = Total General Factory cost* activity rate / Total Direct labor

Particulars EX 300 TX 500 Direct Material $362,325 $158,550 Direct Labor $116,000 $40,500 Manufacturing Overhead $360,341 $77,859 Total Cost $838,666 $276,909 Total Unit 56,000 12,100 Unit Cost $14.98 $22.89

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.