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Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4] Rocky Mountain Corporation makes two...

Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

Xactive Pathbreaker
Direct materials per unit $ 65.20 $ 51.40
Direct labor cost per unit $ 18.60 $ 13.40
Direct labor-hours per unit 1.4 DLHs 1 DLHs
Estimated annual production and sales 29,000 units 79,000 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 $2,439,840
Estimated total direct labor-hours 119,600 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 Expected Activity
Activity Cost Pools and Activity Measures Xactive Pathbreaker Total
Supporting direct labor (direct labor-hours) $ 891,020 40,600 79,000 119,600
Batch setups (setups) 836,000 270 170 440
Product sustaining (number of products) 632,360 1 1 2
General factory (machine-hours) 80,460 2,900 7,900 10,800
Total manufacturing overhead cost $ 2,439,840

Determine the activity rate for each of the four activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

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Answer #1

Solution 1a:

Predetermined overhead rate = $2439840/ 119600 = $20.40 per DLH

Solution 1b:

Computation of Unit Product Cost Xactive Pathbreaker Direct material $65.20 $51.40 8 Direct Labor $18.60 $13.40 9 Manufacturi

Solution 2:

Activity cost pool Supporting Direct Labor Batch Setups Product Sustaining General Factory Computation of Activity rates Over

Solution 3:

M N O P 17 Computation of Unit Product Cost Xactive 18 Direct material $65.20 19 Direct Labor $18.60 | 20 Manufacturing overh

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