Question

Mickley Company's plantwide predetermined overhead rate is $21.00 per direct labor-hour and its direct labor wage rate is $12.00 per hour. The following information pertains to Job A-500: Direct materials Direct labor $ 290 $ 120 Required: 1. What is the total manufacturing cost assigned to Job A-500? 2. If Job A-500 consists of 30 units, what is the unit product cost for this job? (Round your answer to 2 decimal places.) | 1. Total manufacturing cost 2. Unit product cost per unit

Answer 1

Question 1

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1	Total manufacturing cost   [Refer working note 1]	$620
2	Unit product cost               [Refer working note 3]	$20.67	per unit

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Working note 1 - Computation of total manufacturing cost
Direct material	$290
Direct labor	$120
Manufacturing overhead      [Refer working note 2]	$210
Total manufacturing cost   [$290 + $120 + $210]	$620

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Working note 2 - Computation of factory overhead
Direct labor cost                              (a)	$120
Direct labor wage rate                     (b)	$12	per hour
Number of direct labor hours        (c = a / b)	$10	hours
Predetermined overhead rate           (d)	$21	per hour
Factory overhead                             (c x d)	$210

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Working note 3 - Computation of unit product cost
Total manufacturing cost     [Refer working note 1]      (a)	$620
Number of units                                                              (b)	30
Unit product cost                                                          (a / b)	$20.67

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Question 2

Predetermined overhead rate    [Refer working note]

$24.64

per DLH

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Working note - Computation of predetermined overhead rate
Estimated variable manufacturing overhead per direct labor hour   (a)	$2.00
Estimated number of direct labor hours                                            (b)	25,000
Estimated total variable manufacturing overhead                            (c = a x b)	$50,000
Estimated total fixed manufacturing overhead                                  (d)	$566,000
Estimated total manufacturing overhead                                            (e = c + d)	$616,000
Estaimted number of direct labor hours                                             (f)	25,000
Predetermined overhead rate per direct labor hour                     (e / f)	$24.64

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Question 3

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1. Unit product cost under traditional costing
	Deluxe	Standard
Unit product cost   [Refer working note 1]	$102.15	$91.31
2. Unit product cost under activity based costing
	Deluxe	Standard
Unit product cost   [Refer working note 4]	$111.30	$89.28

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Working note 1 - Unit product cost under traditional costing system
	Deluxe	Standard
Direct materials per unit                                         (a)	$69.00	$57.00
Direct labor per unit                                                (b)	$27.00	$22.00
Overhead per unit     [Refer working note 2]           (c)	$6.15	$12.31
Units cost                                                               (a + b + c)	$102.15	$91.31

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Working note 2 - Calculation of overhead cost per unit
	Deluxe	Standard
Direct labor hours per unit                                              (a)	0.70	1.40
Predetermined overhead rate [Refer working note 3]     (b)	$8.79	$8.79
Overhead cost per unit                                                      (a x b)	$6.15	$12.31

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Working note 3 - Calculation of predetermined overhead rate
Total estimated overhead costs       (a)	$677,000
Total estimated direct labor hours (b)	77000
Predetermined overhead rate       (a / b)	$8.79

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Working note 4 - Unit product cost under activity-based costing
	Deluxe	Standard
Direct materials per unit                                         (a)	$69.00	$57.00
Direct labor per unit                                                (b)	$27.00	$22.00
Overhead costs per unit      [Refer working note 5 ]     (c)	$15.30	$10.28
Units cost                                                               (a + b + c)	$111.30	$89.28

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Working note 5 - Allocation of Estimated Overhead to both the products using activity rates:
Activity cost pool	Activity Rate [Refer working note 6]		Deluxe			Standard
			Activity		Allocation of activity's cost	Activity		Allocation of activity's cost
	(a)		(b)		(a x b)	(c)		(a x c)
Supporting direct labor	$6.00	Per direct labor hour	7,000	direct labor hours	$42,000	70,000	direct labor hours	$420,000
Batch setups	$450.00	Per setup	200	setups	$90,000	100	setups	$45,000
Safety testing	$700.00	per test	30	tests	$21,000	70	tests	$49,000
Total overhead					$153,000			$514,000
Units produced					10,000			50,000
Overhead cost per unit    [Total overhead / Units produced]					$15.30			$10.28

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Working note 6 - Calculation of Activity rate
Activity Cost Pool	Estimated overhead costs (a)	Total expected activity (b)		Activity rate (a / b)
Supporting direct labor	$462,000	77,000	direct labor hours	$6.00	Per direct labor hour
Batch setups	$135,000	300	setups	$450.00	Per setup
Safety testing	$70,000	100	tests	$700.00	per test