Question

Werger Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data:

	W82R		L48S
Direct materials per unit	$	20.90	$	65.60
Direct labor per unit	$	21.30	$	56.30
Direct labor-hours per unit		0.70		2.40
Annual production (units)		30,800		17,500

The company's estimated total manufacturing overhead for the year is $2,997,452 and the company's estimated total direct labor-hours for the year is 63,560.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Supporting direct labor (DLHs)	$	444,920
Setting up machines (setups)		810,852
Parts administration (part types)		1,741,680
Total	$	2,997,452

	Activities	W82R	L48S	Total
	Supporting direct labor	21,560	42,000	63,560
	Setting up machines	827	3,310	4,137
	Parts administration	2,060	1,630	3,690

Required:

a. Determine the unit product cost of each of the company's two products under the traditional costing system.

b. Determine the unit product cost of each of the company's two products under activity-based costing system.

(For all requirements, round your intermediate calculations and final answers to 2 decimal places.)

	W82R L48S a. Unit product cost b. Unit product cost

Answer 1

a) Overhead rate = 2997452/63560 = 47.16 per labor hour

	W82R	L48S
Direct material	20.90	65.60
Direct labor	21.30	56.30
Overhead	47.16*.70 = 33.01	47.16*2.4 = 113.18
Unit product cost	75.21	235.08

b) Unit product cost

	W82R	L48S
Supporting direct labor	150920	294000
Setting up machines	162092	648760
Parts administration	972320	769360
Total overhead	1285332	1712120
Units	30800	17500
Overhead cost per unit	41.73	97.84
Direct material	20.90	65.60
Direct labor	21.30	56.30
Unit product cost	83.93	219.74