Question

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

   

	Direct Labor-Hours per unit	Annual Production
Rims	0.70	26,000 units
Posts	0.70	90,000 units

Additional information about the company follows:

1. Rims require $14 in direct materials per unit, and Posts require $10.
2. The direct labor wage rate is $18 per hour.
3. Rims are more complex to manufacture than Posts and they require special equipment.
4. The ABC system has the following activity cost pools:

		Estimated Activity
Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Rims	Posts	Total
Machine setups	Number of setups	$	42,300	120	80	200
Special processing	Machine-hours	$	162,000	4,000	0	4,000
General factory	Direct labor-hours	$	936,000	4,000	48,000	52,000

Exercise 4-8 Part 2

2. Determine the unit product cost of each product according to the ABC system.

Answer 1

Activity Cost Pool	Estimated Overhead Cost (A)	Estimated Activity (B)	Activity Rate (A/B)
Machine setups	$42300	200	$211.50
Special processing	$162000	4000	$40.50
General factory	$936000	52000	$18

2. Determine the unit product cost of each product according to the ABC system.

	Rims	Posts
Direct Material	($14 * 26000) =$364000	($10 * 90000) =$900000
Direct Labor	($18 * 0.70 * 26000) =$327600	($18 * 0.70 * 90000) =$1134000
Overhead:
Machine setups	($211.50 * 120) =$25380	($211.50 * 80) =$16920
Special processing	($40.50 * 4000) =$162000	($40.50 * 0) =$0
General factory	($18 * 4000) =$72000	($18 * 48000) =$864000
Total Cost (A)	$950980	$2914920
Annual Production (B)	26000	90000
Unit Product Cost (A/B)	$36.58	$32.39