Question

Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: $ $ Xactive 63.80 17.20 1.4 DLHS 15,000 units Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales $ $ Pathbreaker 50.00 12.00 1 DLHs 65,000 units The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead Estimated total direct labor-hours $1,634,000 86,000 DLHs Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours. 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Estimated Overhead Cost $ 580,500 360,000 639,500 54,000 $1,634,000 Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) General factory (machine-hours) Total manufacturing overhead cost Expected Activity Xactive Pathbreaker Total 21,000 65,000 86,000 100 300 1 2 1,500 6,500 8,000 200

Answer 1

1. Computation of product margins for Xactive and Pathbreaker products using company's traditional costing system:-
a. Computation of Predetemined Manufacturing overhead rate :-
	Estimated Total manufacturing Overheads			$1,634,000
	Estimated total Direct labor hours			86,000	DLHs
	Predetemined Manufacturing overhead rate		=	Estimated Total manufacturing Overheads
				Estimated total Direct labor hours
			=	$1,634,000
				86000
			=	$19.00	per DLH
B. Computation of Overhead Cost Per unit:-
	Product	Activity Driver		Plantwide OH Rate		Overhead Cost per Unit
	a	b		c		d = b×c
	Xactive	1.4	DLHs	$19.00	per DLH	$26.60
	Pathbreaker	1.0	DLHs	$19.00	per DLH	$19.00
b. Computation of Unit Product Cost :-
			Product
			Xactive		Pathbreaker
	No. of units produced		15000		65000
			Per Unit	Total	Per Unit	Total
	Direct Material Cost		$                   63.80	$                   957,000	$                                  50.00	$             3,250,000
	Direct labor Cost		$                   17.20	$                   258,000	$                                  12.00	$                 780,000
	Overhead Cost		$                   26.60	$                   399,000	$19.00	$             1,235,000
	Product Cost		$                 107.60	$               1,614,000	$                                  81.00	$             5,265,000
2. Computation of Activity rates:-
Activity Cost Pools	Activity measures (Cost Drivers)	Estimated Overhead Cost	Expected Activity			Activity Rate
			Xactive	Pathbreaker	Total
a	b	c	d	e	f	g = c/f
Supporting Direct labor	Direct labor hours (DLHs)	$         580,500	21,000	65,000	86,000	$                       6.75	per DLH
Batch setups	Setups	$         360,000	200	100	300	$                     1,200	per setup
Product sustaining	No. of products	$         639,500	1	1	2	$                 319,750	per product
General Factory	Machine hours	$           54,000	1,500	6,500	8,000	$                       6.75	per MHR
Total Manufacturing Overhead Cost		$     1,634,000
Computation of Overhead Cost Per unit:-
	Overhead Assigned	Activity Driver			Activity Rate	Total Overhead Cost
	a	b			c	d = b×c
	Xactive
	Supporting Direct labor	21,000	Direct labor hours (DLHs)		$ 6.75	$                 141,750
	Batch setups	200	Setups		$                             1,200.00	$                 240,000
	Product sustaining	1	No. of products		$                        319,750.00	$                 319,750
	General Factory	1,500	Machine hours		$ 6.75	$                   10,125
					Total	$                711,625
					Units Produced	15,000
					Overhead Cost per Unit	$                     47.44
	Pathbreaker
	Supporting Direct labor	65,000	Direct labor hours (DLHs)		$ 6.75	$                 438,750
	Batch setups	100	Setups		$                             1,200.00	$                 120,000
	Product sustaining	1	No. of products		$                        319,750.00	$                 319,750
	General Factory	6,500	Machine hours		$ 6.75	$                   43,875
					Total	$                922,375
					Units Produced	65,000
					Overhead Cost per Unit	$                     14.19
3. Computation of Unit Produt Cost :-
			Product
			Xactive		Pathbreaker
	No. of units produced		15000		65000
			Per Unit	Total	Per Unit	Total
	Direct Material Cost		$                   63.80	$                   957,000	$                                  50.00	$             3,250,000
	Direct labor Cost		$                   17.20	$                   258,000	$                                  12.00	$                 780,000
	Overhead Cost		$                   47.44	$                   711,625	$                                  14.19	$                 922,375
	Product Cost		$                 128.44	$               1,926,625	$                                  76.19	$             4,952,375

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