Rosman, Inc., manufactures and sells two products: Product Q1 and Product G2. Th
ID: 2611213 • Letter: R
Question
Rosman, Inc., manufactures and sells two products: Product Q1 and Product G2. The company currently uses a plantwide predetermined overhead rate based on direct labor-hours. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:
The direct labor rate is $28.00 per DLH. The direct materials cost per unit for each product is given below:
The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:
Required:
Calculate the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products. (Round your intermediate calculations and final answers to 2 decimal places. Enter your answers as positive values.)
Rosman, Inc., manufactures and sells two products: Product Q1 and Product G2. The company currently uses a plantwide predetermined overhead rate based on direct labor-hours. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:
Explanation / Answer
Predetermined overhead cost under traditional cost = Overhead ÷ Total Direct labor hours 588164 / 7200 $ 81.69 per DLH Hint Cost under traditional system Cost under traditional system Product Q1 product Q2 Product Q1 product Q2 Expected Production 720 820 Expected Production 720 820 Total Direct material $ 212,112.00 $ 153,996.00 Total Direct material (720 x 294.60) (720 x 187.80) Direct Labor 110,880.00 90,720.00 Direct Labor (3960 x 28) (3240 x 28) Overhead 323,490.20 264,673.80 Overhead (3960 x 81.69) (3240 x 81.69) Total Product Cost $ 646,482.20 $ 509,389.80 Total Product Cost $ 646,482.20 $ 509,389.80 ÷ No of units ÷ 720 ÷ 820 ÷ No of units ÷ 720 ÷ 820 Per units cost $ 897.89 $ 621.21 Per units cost $ 897.89 $ 621.21 Estimated Expected Activity Activity rate A B C = A÷ B Activity Cost Pools Activity Measures Overhead Cost Product Q1 Product G2 Total Labor-related DLHs $ 105,156 3,960 3,240 7,200 $ 14.61 Product testing Tests 78,008 1,230 1,640 2,870 $ 27.18 General factory MHs 405,000 6,000 5,280 11,280 $ 35.90 $ 588,164 Overhead assigned as per ABC rates Product Q1 Rate x No. of driver units = Amount Labor-related $ 14.61 3960 $ 57,835.80 Product testing $ 27.18 1230 $ 33,432.00 General factory $ 35.90 6000 $ 215,425.53 $ 306,693.33 Product G2 Rate x No. of driver units = Amount Labor-related $ 14.61 3240 $ 47,320.20 Product testing $ 27.18 1640 $ 44,576.00 General factory $ 35.90 5280 $ 189,574.47 $ 281,470.67 Cost under ABC system Product Q1 product Q2 Expected Production 720 820 Total Direct material $ 212,112.00 $ 153,996.00 Direct Labor 110,880.00 90,720.00 Overhead 306,693.33 281,470.67 Total Product Cost $ 629,685.33 $ 526,186.67 ÷ No of units ÷ 720 ÷ 820 Per units cost $ 874.56 $ 641.69 Product Q1 product Q2 ABC per unit cost $ 874.56 $ 641.69 Traditional per unit cost $ 897.89 $ 621.21 Difference $ (23.33) $ 20.48
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