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	Annual Production
Rims	0.30	27,000 units
Posts	0.50	75,000 units

Additional information about the company follows:

1. Rims require $12 in direct materials per unit, and Posts require $10.
2. The direct labor wage rate is $20 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	$	30,000	100	50	150
Special processing	Machine-hours	$	121,500	6,000	0	6,000
General factory	Direct labor-hours	$	756,000	9,000	45,000	54,000

2. Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

unit product cost of rims

unit product cost of posts

Answer 1

Activity cost pool	Estimated Overhead		Activity rate	Rims	Post
Machine setups	$30,000	150	$200 ($30,000/150)	$20,000 (100*$200)	$10,000 (50*$200)
Special processing	121,500	6,000	20.25 (121,500/6,000)	121,500 (6,000*20.25)	0
General factory	756,000	54,000	14 (756,000/54,000)	126,000 (9,000*$14)	630,000 (45,000*$14)
Total	$907,500			$267,500	$640,000

	Rims	Post
Direct material per unit	$12	$10
Direct labor per unit	6 (0.30*$20)	10 (0.50*$20)
Applied overhead per unit	9.91 ($267,500/27,000)	8.53 ($640,000/75,000)
Unit product cost	$27.91	$28.53