Question

Siegel Company manufactures product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company's profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $6.906,275 in manufacturing overhead cost and produce 23.000 units of the deluxe model and 112.000 units of the regular model. The deluxe model requires 10 hours of direct labor time per unit, and the regular model requires 0.5 hour. Material and labor costs per unit are as follows: Model Deluxe Regular Direct materials Direct labor $ 13 $ 18 Required: 1-o. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate. 1-b. Using the predetermined overhead rate computed in 1-3 above and other data from the problem, determine the unit product cost of each model 2. Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity based system would have the following four activity cost pools: Activity Cost Pool Purchasing Activity Measure Purchase orders issued Machine-hours Scrap/rework orders issued Number of shipments Estimated Overhead Cost $ 270,see 4,377, see 619,875 1,638, eee $6,986,275 Scrap/rework Shipping Activity Measure Purchase ordens 13sued Machine hours scrap/rowork orders 15 sucd Number of shipments Expected Activity Deluxe Regular Total 429940 1.250 28,6ee38,90 51,5ee 6,240 9,36€ 15,600 Determine the predetermined overhead rate for each of the four activity cost pools. 3. Using the predetermined overhead rotes you computed in part 2), do the following: o. Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each model b. Compute the unit product cost of each model (direct materials, direct labor, and manufacturing overhead). Complete this question by entering your answers in the tabs below. Red 1A Reg 1B Reg 2 Rey 3A Reg 3 Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLH ROSTA Req 18 >

Answer 1

	Model
	Deluxe	Regular	Total
Estimated production	23000	112000
(*) Direct labor hours per unit	1.0	0.5
Estimated total direct labor hours	23000	56000	79000

1-a.
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated total direct labor hours = 6906275 / 79000	87.42	per DLH

1-b.
	Model
	Deluxe	Regular
Direct materials per unit	159	107
Direct labor per unit	13	10
Manufacturing overhead applied ( Predetermined overhead rate * Direct labor hours per unit )	87.42	43.71
Unit product cost	259.42	160.71

2.

Activity cost pool	Activity rates [ Estimated overhead cost / Expected total activity ]
Purchasing ( 270900 / 1260 )	215	per purchase order
Processing ( 4377500 / 51500 )	85	per MH
Scrap/rework ( 619875 / 855 )	725	per order
Shipping ( 1638000 / 15600 )	105	per shipment

3-a.
Allocation of manufacturing overhead [ Expected activity * Activity rates ]	Deluxe	Regular
Purchase orders	90300	180600
Rework requests	1751000	2626500
Product testing	344375	275500
Machine related	655200	982800
Total overhead Cost	2840875	4065400
(/) Production in units	23000	112000
Overhead cost per unit	123.52	36.30

3-b.
	Deluxe	Regular
Direct materials cost per unit	159.00	107.00
Direct labor cost per unit	13.00	10.00
Unit manufacturing overhead cost	123.52	36.30
Unit product cost	295.52	153.30