Extra Credit: Finding Activity Rates for all Activities Tommy Lyons Company manu

Question

Extra Credit: Finding Activity Rates for all Activities Tommy Lyons Company manufactures and sells two products: Product S3 and Product K2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below ProductProduction DLH/Unit Total DLHs Product S3: 800 6.400 11,800 The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below 8.0 Product K2: 9006.0 Total DLH S3 $280.70 K2 $157.90 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity Expected Activity U8 6,400 600 5,000 U1 5,400 800 5,300 Total 11,800 1,400 10,300 Activity cost poolsAct. Measure Overhead Cost DLHs 135,478 392,327 $1,050,899 Setups Machine setups General factory Total Overhead Costs- Required: a. The company currently uses a traditional costing method in which overhead is applied to products based solely or direct labor-hours. Compute the company's predetermined overhead rate under this costing method. b. How much overhead would be applied to each product under the company's traditional costing c. Determine the unit product cost of each product under the company's traditional costing method. d. Compute the activity rates under the activity-based costing systom. e. Determine how much overhead would be assigned to each product under the activity-based costing system f. Determine the unit product cost of each product under the activity-based costing method. method?

Explanation / Answer

Req 1: LABOUR HOURS: Product Production DLH /unit TOTAL DLH S3 800 8 6400 K2 900 6 5400 11800 Total overhead cost: $ 1050899 Pre-determined H rate: Total OH / Total DLH = 1050899 /11800 = $89.059 Req 2: Overheads applied: S3 (6400 hours @89.059) 569979 K2 (5400 hours @89.059) 480920 Req 3: UNIT product cost: S3 K2 Material cost 280.7 157.9 Labour cost S3 (8 DLH @ 18) 144 K2 (6 DLH @18) 108 OH cost per unit S3 (569979/800) 712.47 K2 (480920 /900) 534.37 UNIT COST 1137.17 800.27 Req 4: Activity rate STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Labour related DLH 523,094 11,800 44.33 Machine setups Setup 135,478 1,400 96.77 General factory MH 392,327 10,300 38.09 Req 5: Overheads assigned: S3 K2 Activity rate Activity OH cost Activity OH cost Labour related 44.33 6400 283712 5400 239382 Machine setups 96.77 600 58062 800 77416 General factory 38.09 5000 190450 5300 201877 TOTAL OH 532224 518675 Req 6: UNIT product cost: S3 K2 Material cost 280.7 157.9 Labour cost S3 (8 DLH @ 18) 144 K2 (6 DLH @18) 108 OH cost per unit S3 (532224/800) 665.28 K 2(518675/900) 576.31 UNIT COST 1089.98 842.21

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