1. ) Cab Company manufactures two products, Product C and Product D. The company

Question

1. ) Cab Company manufactures two products, Product C and Product D. The company estimated it would incur $120,100 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below: Product C Product D Estimated volume 400 units 3,000 units Direct labor hours per unit 1.20 hours 1.30 hour Direct materials cost per unit $4.00 $22.80 Direct labor cost per unit $12.00 $13.00 Required: a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: Expected Activity Activity Cost Pool Estimated Overhead Costs Product C Product D Total Machine setups $ 11,440 60 120 180 Purchase orders 78,000 820 1,180 2,000 General factory    30,660 480 3,900 4,380 Total $120,100 Determine the unit product cost of each product for the current period using the activity-based costing approach.

Explanation / Answer

Req 1: Total Labour hours: Pproduct C (400 units @ 1.20 hours) 480 Product D(3000 units @ 1.30) 3900 Total Labour hours: 4380 Pre-determined Overhead rate: Estimated Overheads / Estimated DLH = 120,100 /4380 = $27.42 per DLH UNIT PRODUCT COST: Product C Pproduct D Material cost 4 22.8 Labour cost 12 13 Oh cost Product C (1.20 hours @27.42) 32.904 Product D (1.30 hours@27.42) 35.646 Total Unit cost 48.904 71.446 Req 2: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Total Expected Activity ACTIVITY COST POOL Overheads Activity Rate Machine setup 11,440 180 64 Purchase orders 78,000 2,000 39 General factory 30,660 4,380 7 OH assigned and OH cost per unit Product C Product D Activity Rate Activity inc. OH Activity inc. OH Machine setup 64 60 3840 120 7680 Purchase orders 39 820 31980 1180 46020 General factory 7 480 3360 3900 27300 Total Overheads 39180 81000 Number of units 400 3000 OH cost per unit 97.95 27 UNIT PRODUCT COST: Product C Pproduct D Material cost 4 22.8 Labour cost 12 13 Oh cost 97.95 27 Unit cost 113.95 62.8

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