Stillicum Corporation makes ultra light-weight backpacking tents. Data concernin

Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below:

The company has a traditional 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:

*****Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.*****

The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:  

****Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.*****

Deluxe Standard Direct materials per unit $ 59.00 $ 47.00 Direct labor per unit $ 17.00 $ 14.00 Direct labor-hours per unit 0.70 DLHs 1.40 DLHs Estimated annual production 10,000 units 50,000 units

Explanation / Answer

a. Deluxe Standard Direct Materials per unit $      59.00 $         47.00 Direct Labor per unit $      17.00 $         14.00 Manufacturing overhead per unit $         5.70 $         11.40 Unit Cost $      81.70 $         72.40 Working: a. Manufacturing overhead per direct labor hour = Total Manufacturing overhead/Total direct laboor hours = $       6,27,000 /        77,000 = $               8.14 b. Manufacturing overhead applied to: Direct Labor hours per unit Overhead per labor hour Overhead Cost Deluxe             0.70 $            8.14 $          5.70 Standard             1.40 $            8.14 $        11.40 b. Deluxe Standard Direct Materials per unit $      59.00 $         47.00 Direct Labor per unit $      17.00 $         14.00 Manufacturing overhead per unit $      13.00 $            9.94 Unit Cost $      89.00 $         70.94 Working: a. Calculation of Activity rates: Activity Cost Pools and Activity Measures Estimated Overhead Cost Total Actiivty Actiivty Rate Supporting direct labor (direct labor-hours) $   4,62,000 77000 $          6.00 Batch setups (setups) $   1,05,000 300 $      350.00 Safety testing (tests) $       60,000 100 $      600.00 $   6,27,000 b. Calculation of overhead assignment; Deluxe Standard Quantity Activity rate Overhead Cost Quantity Activity rate Overhead Cost Supporting direct labor (direct labor-hours)         7,000 $         6.00 $     42,000        70,000 $       6.00 $ 4,20,000 Batch setups (setups)            200 $    350.00 $     70,000              100 $ 350.00 $      35,000 Safety testing (tests)               30 $    600.00 $     18,000                 70 $ 600.00 $      42,000 Total Manufacturing overhead cost $ 1,30,000 $ 4,97,000 / Number of units produced         10,000          50,000 Manufacturing cost per unit $       13.00 $          9.94

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