Question

Problem 4-17 Contrast Activity-Based Costing and Conventional Product Costing [LO4-2, LO4-3, LO4-4]

[The following information applies to the questions displayed below.]

Puget World, Inc., manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:

	Direct Labor- Hours per Unit	Annual Production	Total Direct Labor-Hours
Model N 800 XL	3.5	4,500 units	15,750
Model N 500	1.2	12,500 units	15,000
			30,750

Additional information about the company follows:

a. Model N 800 XL requires $60 in direct materials per unit, and Model N 500 requires $15.

b. The direct labor wage rate is $19 per hour.

c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.

d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Machine setups	Number of setups	$	420,000
Special processing	Machine-hours		195,000
General factory	Direct labor-hours		1,230,000
		$	1,845,000

	Expected Activity
Activity Measure	Model N 800 XL	Model N 500	Total
Number of setups	120	300	420
Machine-hours	15,000	0	15,000
Direct labor-hours	15,750	15,000	30,750

Problem 4-17 Part 1

Required:

1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.

a. Compute the predetermined overhead rate.

b. Compute the unit product cost of each model.

Complete this question by entering your answers in the tabs below.

• Req 1A

Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products. Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)

	Predetermined overhead rate per DLH

Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products. Compute the unit product cost of each model. (Round your answers to 2 decimal places.)

Model N 800 XL    Model N 500

Problem 4-17 Part 2

2. Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products.

a(1). Compute the activity rate for each activity cost pool.

a(2). Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system.

b. Compute the unit product cost of each model.

• Req 2A1

Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

Machine setup per setup Special processing per MH General factory    per DLH

Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Model N 800 XL Model N 500 Overhead cost per unit Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Compute the unit product cost of each model. (Round your intermediate calculations and final answers to 2 decimal places.) Model N 800 XL Model N 500 Unit product cost

Answer 1

solution: 1-a) predetermined overhead rate = estimated MOH cost/estimated DLH 1845000/30750 60.00 per DLH 1-b) Direct material Direct labor (3.5*19), (1.2*19) Overhead applied (3.5*60), (1.2*60) Unit product cost Model N 800 XL Model N 500 60.00 15.00 66.50 22.80 210.00 72.00 336.50 109.80 2a1) activity cost pool Machine setups Special processing General factory estimated overhead cost Total activity activity rate ba/b 420000 420 1,000.00 Per setup 195000 15000 13.00 per MH 1230000 30750 40.00 Per DLH 2a2) activity cost pool activity rate Machine setups Special processing General factory Total cost assigned / number of units produced Overhead cost per unit Activity level cost assigned Model N 800 XL Model N 500 Model N 800 XL Model N 500 d=a*b e=a*c 1,000.00 120 300 120000 300000 13.00 15000 0 이 l 195000 0 40.00 15750 15000 630000 600000 945000 900000 4500 12500 210.00 72.00 Model N 800 XL b) Direct material Direct labor Overhead applied Unit product cost 60.00 66.50 210.00 336.50 Model N 500 15.00 22.80 72.00 109.80