Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Dat

Question

Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $24.70 per DLH. The direct materials cost per unit for each product is given below:

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

The unit product cost of Product R4 under activity-based costing is closest to:

Question 24 options:

$566.96 per unit

$601.16 per unit

$429.43 per unit

$535.31 per unit

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product R4 800 6.0 4,800 Product N4 300 3.0     900 Total direct labor-hours 5,700

Explanation / Answer

Unit cost of R4 is $535.31 per unit is calculated as follows:

Details

Products

R4

N4

Direct Materials Cost per Unit

$ 202.10

$ 289.90

Direct labor Cost per Unit

   R4 6 hours per unit           

$ 148.20

   N4 3 hours per unit

$    74.10

Overheads:(See working Note below)

Indirect labor

$    91.38

$    45.69

Machine set up

$    14.50

$    58.00

Factory overhead

$    79.13

$ 197.39

Cost per unit

$ 535.31

$ 665.08

working Note:

Details

Indirect labor

Machine setup

Factory overhead

Product

R4

N4

R4

N4

R4

N4

Overheads for indirect labor

$ 86,811   

$ 29,000

$ 122,520

Expected activity

5700

1000

6000

Overhead per activity

$ 15.23

$ 29.00

$ 20.42

Expected activity for R4 and N4 products respectively

4800

900

400

600

3100

2900

Expected activity cost for R4 and N4 products respectively

$ 73,104

$ 13,707

$ 11,600

$ 17,400

$      63,302

$ 59,218

Number of units per product

800

300

800

300

800

300

Overhead per unit

$ 91.38

$ 45.69

$ 14.50

$ 58.00

$ 79.13

$ 197.39

Details

Products

R4

N4

Direct Materials Cost per Unit

$ 202.10

$ 289.90

Direct labor Cost per Unit

   R4 6 hours per unit           

$ 148.20

   N4 3 hours per unit

$    74.10

Overheads:(See working Note below)

Indirect labor

$    91.38

$    45.69

Machine set up

$    14.50

$    58.00

Factory overhead

$    79.13

$ 197.39

Cost per unit

$ 535.31

$ 665.08

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