Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreak

Question

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

The company has a conventional 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:

The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

  

Determine the activity rate for each of the four activity cost pools. (Round your final answers to 2 decimal places.)

Using the activity rates and other data from the problem, determine the unit product cost of each product. (Round the intermediate calculations and final answer to two decimal places.)

Xactive Pathbreaker   Direct materials per unit $ 65.80 $ 52.00   Direct labor cost per unit $ 19.20 $ 14.00   Direct labor-hours per unit 1.4 DLHs 1 DLHs   Estimated annual production and sales 35,000 units 85,000 units

Explanation / Answer

Solution.

1 a . Computetion of the predetermined overhead rate based on direct labor-hours.

Estimated total manufacturing overhead = $2,814,000

Estimated total direct labor-hours = 134,000 DLHs

Predetermined overhead rate = $2,814,000 / 134,000 = $21 per DLHs

1 b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

Particular Per unit Xactive 35,000 unit Pathbreake 85,000 unit Direct materials per unit                            65.80                          2,303,000.00                        5,593,000.00 Direct labor cost per unit                            19.20                             940,800.00                        1,632,000.00 Manuhectureing overhead                            21.00                          1,029,000.00                        1,785,000.00 Total cost                          106.00                          4,272,800.00                        9,010,000.00 Unit                                      35,000                                    85,000 Cost per unit                          106.00                                      122.08                                    106.00

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