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:

Required:

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

2. 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

Answer 1) Unit Product Cost under traditional Costing method :

Manufacturing Overhead Cost per hour = 627000/77000 = $8.14 per hour

Answer 2)

Activity cost rate:

Activity Overhead Cost per product:

$42000

(6*7000)

$420000

(6*70000)

$70000

(350*200)

$35000

(350*100)

$18000

(600*30)

$42000

(600*70)

Cost as per Activity based costing :

4.20

8.40

7

0.70

1.80

0.84

Delux Standard Direct Material Cost 59 47 Direct Labour Cost 17 14 Manufacturing Overhead Cost 5.70 11.40 Total Cost 81.70 72.40

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