Question

Siegel Corporation produces a product that is available in both a Deluxe and a Regular model. It is estimated that $2,410,000 in manufacturing overhead costs will be incurred and that the company will produce 9,500 units of the Deluxe model and 20,000 units of the Regular model. The Direct Materials and Direct Labor costs per unit are as follows: Deluxe Regular Direct Materials cost per unit............... $155 $124 Direct Labor cost per unit................................ $20 $11 The company uses Activity-Based Costing to allocate manufacturing overhead costs to its products. Four activity cost pools and their associated activities are as follows: Estimated Activity Deluxe Regular Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing number of tests) Machine-related (machine hours) Total Estimated Overhead Estimated Overhead Cost $ 100,000 220,000 480,000 1,610,000 $2,410,000 300 orders 500 requests 6,000 tests 16,000 hours 700 orders 600 requests 10,000 tests 24,250 hours Compute the following: - The activity rate for each Activity Cost Pool; • The unit Manufacturing Overhead cost for each model; - The unit product cost for each model

Answer 1

a. Determination of activity rate for each activity cost pool:-
Activity Cost Pool	Estimated Overhead Cost	Activity measures (Cost Drivers)	Expected Activity			Cost per driver
			Delux	Regular	Total
a	c	b	d	e	f	g = c/f
Purchase orders	$ 100,000	no. of orders	300	700	1,000	$      100.00
Rework Requests	$ 220,000	no. of requests	500	600	1,100	$      200.00
Product Testing	$ 480,000	no. of tests	6,000	10,000	16,000	$        30.00
Machine related	$ 1,610,000	machine hours	16,000	24,250	40,250	$        40.00
Total Manufacturing Overhead Cost	$ 2,410,000
b. Computation of Unit Manufacturing Overhead Cost for each model:-
	Overhead Assigned	Activity Driver			Cost per driver	Total Overhead Cost
	a	b			c	d = b×c
	Delux
	Purchase orders	300	no. of orders		$ 100.00	$      30,000
	Rework Requests	500	no. of requests		$ 200.00	$    100,000
	Product Testing	6,000	no. of tests		$ 30.00	$    180,000
	Machine related	16,000	machine hours		$ 40.00	$    640,000
					Total	$    950,000
					Units Produced	9,500
					Overhead Cost per Unit	$      100.00
	Regular
	Purchase orders	700	no. of orders		$ 100.00	$      70,000
	Rework Requests	600	no. of requests		$ 200.00	$    120,000
	Product Testing	10,000	no. of tests		$ 30.00	$    300,000
	Machine related	24,250	machine hours		$ 40.00	$    970,000
					Total	$1,460,000
					Units Produced	20,000
					Overhead Cost per Unit	$        73.00
c. Computation of Unit product cost for each model:-
			Delux	Regular
	Direct Material Cost per unit		$                                                155.00	$                              124.00
	Direct labor Cost per unit		$                                                  20.00	$                                 11.00
	Overhead Cost per unit		$                                                100.00	$                                 73.00
	Total Manufacturing Cost per unit		$                                                275.00	$                              208.00

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