Kepple Manufacturing currently uses a traditional costing system. The company al
ID: 2420008 • Letter: K
Question
Kepple Manufacturing currently uses a traditional costing system. The company allocates overhead to its two products, Zips and Dees, using a predetermined manufacturing overhead rate based on direct labor hours. Here is data related to the company's two products:
Zips Dees
Direct materials per unit $ 140.00 $ 100.00
Direct labor per unit $ 55.00 $ 50.00
Direct labor hours per unit 2.0 1.5
Annual production 25,000 40,000
Information about the company's estimated manufacturing overhead for the year follows:
Total estimated direct labor hours for the company for the year are 110,000 hours.
The company is evaluating whether it should use an activity-based costing system in place of its traditional costing system. Additional information about production needed for the activity-based costing system follows:
The amount of manufacturing overhead that would be allocated to one unit of Zips using an activity-based costing system would be closest to:
Select one:
a. $64.81.
b. $32.86.
c. $51.12.
d. $11.95.
Activities
Activity measures Estimated overhead cost Supervision and maintenance Direct labor hours $2,200,000 Batch costs Number of batches $ 212,500 Engineering changes Number of engineering hours $ 180,000 Total estimated manufacturing overhead for the year $2,592,500
Explanation / Answer
Overheads costs allocated to Zips: $ 1,278,000.00 (2200000*50000/1000000+212500*2000/2500+180000*1800/3000) Estimated annual production: 25,000 Overhead cost per unit of Zip: $ 51.12 1278000/25000
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