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: Direct materials cost per unit Direct labor cost per unit Direct labor-hours per unit Number of units produced 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 $412,100. Using the company's traditional costing system, compute the unit product costs for the two products. 2. Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year: Rascon Parcel Total 4,700 4,700 9.400 Engineering design time in hours) Compute the unit product costs for the two products using the proposed activity-based absorption costing system. Complete this question by entering your answers in the tabs below. Required 1 Required 2 The company's manufacturing overhead costs for the year are expected to be $412,100. 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.) Rascon Parcel Unit product cost Required 2 >

Answer 1

Solution 1:

direct labor hours = 18000*0.20 + 49000*0.25 = 15,850 hours

Predetermined overhead rate = $412100/ 15850 = $26 per hour

Computation of Unit costs
	Rascon	Parcel
Direct Materials	$12.00	$7.00
Direct labor	$2.90	$4.10
Overhead Costs	$5.20	$6.50
Total Costs per unit	$20.10	$17.60

Solution 2:

Computation of Activity rates
Cost Pool	Cost assigned	Total activity level	Activity rate
Based on Direct labor hours	$2,06,050	15850	$13.00
Based on Engineering hours	$2,06,050	9400	$21.92			15850
Total	$4,12,100
Computation of Overhead assigned to products
	Rascon			Parcel
Activity cost pool	Activity level used	Activity rate	Cost assigned	Activity level used	Activity rate	Cost assigned
Based on Direct labor hours	3600	13.00	$46,800	12250	13.00	$1,59,250
Based on Engineering hours	4700	21.92	$1,03,024	4700	21.92	$1,03,024
Total Overhead cost assigned			$1,49,824			$2,62,274
Number of units			18000			49000
Overhead per unit			$8.32			$5.35

Computation of Unit costs
	Rascon	Parcel
Direct Materials	$12.00	$7.00
Direct labor	$2.90	$4.10
Overhead Costs	$8.32	$5.35
Total Costs per unit	$23.22	$16.45