Looking to achieve the highest grade possible, please see below. Please indicate

Question

Looking to achieve the highest grade possible, please see below. Please indicate if this answer is correct. IF I have left a calcuation out, please include.

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The Big Bus Company manufactures two products, Product 1 and Product 2. Product 2 was developed as an attempt to enter a market closely related to that of Product 1. Product 2 is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product 1. Product 2 is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product 2 and 22,000 units of Product 1 during the current year. Unit costs for materials and direct labour are: Product 1 Product 2 Direct Labour $7 $15 Direct material $9 $20 Required: a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks) Product 1 Product 2 Total Allocation Direct Labour hour / unit 1.5 3 396,000 / 49,500 units produced 22,000 5,500 8 total labour hour 33,000 16,500 49,500 overhead/unit 12 24 overhead/unit is calculated by direct LH x 8 Product 1 Product 2 Direct material 9 20 Direct labour 7 15 overhead/unit 16 35 cost/unit 32 70 b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: (5 marks) Expected Activity Activity Costs Pools Estimated Overhead Costs Product 1 Product 2 Total Machine set-ups required $170,000 700 1,000 1,700 Purchase orders issued 37,000 300 200 500 Machine-hours required 91,000 4,000 9,000 13,000 Maintenance requests issued 98,000 400 600 1,000 $396,000 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. Total Cost Product A Product B Machine Setups 170,000 70,000 100,000 purchase order 37,000 22,200 14,800 machine hours 91,000 28,000 63,000 maintenance requests 98,000 39,200 58,800 Total 396,000 159,400 236,600 22,000 5,500 overhead /cost 7..25 43..02 product 1 product 2 Direct Labour 9 20 direct material 7 15 overhead / unit 7..25 43.02. Unit/ cost 23..25 78.020.

Explanation / Answer

Yes , your answer is correct.

SOLUTION A Total hours Calculation of total budgeted hours Product units hour per case total hours Product 1 22000 1.5 33000 product 2 5500 3 16500 49500 49500 recovery rates=   total over head cost/ total budgeted hours                               = 396000/49500 8 Rs 8 per hour Particulars Product 1 Product 2 Direct material 9 20 Direct labour 7 15 overhead/unit (1.5*8)/(3*8) 12 24 cost/unit 28 59 Solution b calculation of cost per activity cost pools Expected Activity Activity Costs Pools Estimated Overhead Costs Product 1 Product 2 Total Cost per cost pool( total cost/ total of cost pools) Machine set-ups required 170000 700 1,000 1,700 100 Purchase orders issued 37,000 300 200 500 74 Machine-hours required 91,000 4,000 9,000 13,000 7 Maintenance requests issued 98,000 400 600 1,000 98 396000 Calculation of OH cost per unit Product 1 Product2 Machine set-ups cost 70000 100000 Purchase orders cost 22200 14800 Machine-hourscost 28000 63000 Maintenance cost 39200 58800 Total OH cost 159400 236600 No of units 22000 5500 Per unit OH cost 7.25 43.02 Product 1 Product2 materil 9 20 labour 7 15 overhead / unit 7.25 43.02 Unit/ cost 23.25 78.02

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