5. Parody, Inc, manufactures and sells two products: Product W5 and Product V5.

Question

5. Parody, Inc, manufactures and sells two products: Product W5 and Product V5. Data concerming the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below ProductW5 ProductV5 Total direct labor-hours Expected Productin Diret Labor-Hours Per Unit Total Drect Labor-Hours 6,300 4,500 10,800 900 7.0 500 9.0 0 per DLH. The di below. Direct Materials Cost per Unit $231.60 $132.80 ProductW5 ProductV5 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Explanation / Answer

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a. Company's predetermined overhead rate (POR) = Total overhead cost/ Direct labour hours = 109.16 b. Overhead to be applied to each product under traditional costing = POR*Actual DLH Product W5 (109.16*6300 DLH) 687701 Product V5 (109.16*4500 DLH) 491215 c. Unit Product Cost (Traditional Costing) Product W5 Direct Material ($231.60 * 900) 208440 Direct Labour ($16.30 * 6300) 102690 Overhead Cost (calculated above) 687701 Total Cost 998831 Product V5 Direct Material ($132.80 * 500) 66400 Direct Labour ($16.30 * 4500) 73350 Overhead Cost (calculated above) 491215 Total Cost 630965 d. Activity rates under ABC system Cost Pools Activity Measures Overhead Cost Activity Rate Labour related (DLH) 10800 326916 30.27 Production Orders (Orders) 1000 21820 21.82 General Factory( MH) 10300 830180 80.60 e. Overhead assigned to each product under ABC Product W5 Labour related ($30.27*6300) 190701 Production Orders ($21.82*400) 8728 General Factory( $80.60*5000) 403000 Total Product W5 Overhead cost 602429 Product V5 Labour related ($30.27*4500) 136215 Production Orders ($21.82*600) 13092 General Factory( $80.60*5300) 427180 Total Product V5 Overhead cost 576487 f. Unit Product Cost (ABC Costing) Product W5 Direct Material ($231.60 * 900) 208440 Direct Labour ($16.30 * 6300) 102690 Overhead Cost (calculated above) 602429 Total Cost 913559 Product V5 Direct Material ($132.80 * 500) 66400 Direct Labour ($16.30 * 4500) 73350 Overhead Cost (calculated above) 576487 Total Cost 716237

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