Tulip Company produces two products, T and U. The indirect labor costs include t

Question

Tulip Company produces two products, T and U. The indirect labor costs include the following two items: Plant supervision $ 700,000 Setup labor (indirect) 300,000 Total indirect labor $1,000,000 The following activity-base usage and unit production information is available for the two products: Determine the single plantwide factory overhead rate, using direct labor hours as the activity base. Determine the factory overhead cost per unit for Products T and U, using the single plantwide factory overhead rate. Determine the activity rate for plant supervision and setup labor, assuming that the activity base for supervision is direct labor hours and the activity base for setup is number of setups. Determine the factory overhead cost per unit for Products T and U, using activity-based costing. Why is the factory overhead cost per unit different for the two products under the two methods

Explanation / Answer

a) factory overhead rate = estimated manufacturing overhead cost / estimated total hours

= $ 1000000 / 50000 hours = $ 20 per direct labor hour

b) Factory overhead cost per unit product T = $ 1000000 / 900 units = $ 1111.11 per unit

Factory overhead cost per unit product U = $ 1000000 / 1100 units = $ 909.09 per unit

c) Activity rate for Plant supervision = $ 700000 / 50000 hours = $ 14 per hour

Activity rate for setup labor = $ 300000 / 400 setups = $ 750 per setup

d) factory overhead cost per unit Product T = (20000*14+200*750) / 900 = $ 477.78

factory overhead cost per unit product U = (30000*14 + 200*750) / 1100 = $ 518.18

e) because in activity based costing overhead is apportioned under different activity using different activity cost drivers.

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