Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Dat
ID: 2426877 • Letter: S
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 activity rate for the Labor-Related activity cost pool under activity-based costing is closest to:
$15.23 per DLH
$238.33 per DLH
$72.50 per DLH
$48.33 per DLH
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 5,700Explanation / Answer
The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to $15.23 per DLH is calculated as follows.
Activity rate for the Labor-Related activity cost pool = Labor rated overhead cost / total number of labor hours
= $86,811 / 5,700
= $15.23 per DLH
For the asker:
For the benefit of student the unit product cost of product R4 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:
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
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:
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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