Question

Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:

	Rascon				Parcel
Direct materials cost per unit	$	13			$	7
Direct labor cost per unit	$	2.70			$	4.00
Direct labor-hours per unit		.50				.55
Number of units produced		20,000				48,000

These products are customized to some degree for specific customers.    

Required:

1. The company's manufacturing overhead costs for the year are expected to be $1,019,200. Using the company's traditional costing system, compute the unit product costs for the two products. (Round your intermediate calculations and final answers to 2 decimal places.)

  

2. Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

	Rascon	Parcel	Total
Engineering design time (in hours)	4,300	4,300	8,600

Compute the unit product costs for the two products using the proposed activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

1) Estimated direct labor hour = (20000*.50+48000*.55) = 36400 Hour

Overhead rate = 1019200/36400 = 28 per hour

	Rascon	Parcel
Direct material	13	7
Direct labor	2.70	4
Overhead	28*.50 = 14	28*.55 = 15.40
Unit product cost	29.70	26.40

2) Calculate unit product cost

	Rascon	Parcel
Overhead based on labor hour	140000	369600
Overhead based on engineering time	254800	254800
Total overhead	394800	624400
Unit	20000	48000
Overhead cost per unit	19.74	13.01
Direct material	13	7
Direct labor	2.70	4
Unit product cost	35.44	24.01