Question

Exercise 4-8 Computing ABC Product Costs [LO4-2, LO4-3] (The following information applies to the questions displayed below.] Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow: Direct Labor-Hours per unit 0.40 0.70 Annual Production 18,000 units 77,000 units Rims Posts Additional information about the company follows: a. Rims require $14 in direct materials per unit, and Posts require $11. b. The direct labor wage rate is $15 per hour. c. Rims are more complex to manufacture than Posts and they require special equipment. d. The ABC system has the following activity cost pools: Estimated Activity Rims Posts 120 Estimated Overhead Cost $ 30,030 $ 147,840 $ 576,000 Activity Cost Pool Machine setups Special processing General factory 80 Activity Measure Number of setups Machine-hours Direct labor-hours Total 200 2,000 36,000 2,000 7,000 29,000

Answer 1

CALCULATION OF OVERHEAD COST AND ALLOCATION TO PRODUCT:

Activity					RIMS		POSTS
	FORMULA			Overhead rate	Activity usage	Overhead allocation (overhead rate *activity usage)	Activity usage	Overhead allocation (overhead rate *activity usage
	Activity cost	/	Activity driver
Machine setups	30030		200	150.15	120	18018	80	12012
Special processing	147840	/	2000	73.92	2000	147840	0	0
General factory	576000		36000	16	7000	112000	29000	464000
Total overhead						277858		476012
Annual production						18000`		77000
Overhead cost per unit						15.44		6.18

	RIMS	POSTS
Direct material	14	11
Direct labor	.4*15=6	.7*15= 10.5
overhead cost	15.44	6.18
Total cost per unit	35.44	27.68