Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production Deluxe $ 52.00 $ 10.00 0.70 DLRS 10,000 units Standard $ 40.00 $ 8.40 1.40 DLHS 50,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead Estimated total direct labor-hours $522,000 77,000 DLHS Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools: Expected Activity Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Safety testing (tests) Total manufacturing overhead cost Estimated Overhead Cost $ 385.000 84.000 53,000 $ 522,000 Deluxe Standard 7.000 70.000 200 100 30 Total. 77.000 300 100 70 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Deluxe Standard Unit product cost

Answer 1

1. Unit product cost under traditional costing
	Deluxe	Standard
Unit product cost   [Refer working note 1]	$66.75	$57.89
2. Unit product cost under activity based costing
	Deluxe	Standard
Unit product cost   [Refer working note 4]	$72.69	$56.70

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Working note 1 - Unit product cost under traditional costing system
	Deluxe	Standard
Direct materials per unit                                         (a)	$52.00	$40.00
Direct labor per unit                                                (b)	$10.00	$8.40
Overhead per unit     [Refer working note 2]           (c)	$4.75	$9.49
Units cost                                                               (a + b + c)	$66.75	$57.89

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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)	$6.78	$6.78
Overhead cost per unit                                                      (c = a x b)	$4.75	$9.49

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Working note 3 - Calculation of predetermined overhead rate
Total estimated overhead costs       (a)	$522,000
Total estimated direct labor hours (b)	77000
Predetermined overhead rate       (a / b)	$6.78

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Working note 4 - Unit product cost under activity-based costing
	Deluxe	Standard
Direct materials per unit                                         (a)	$52.00	$40.00
Direct labor per unit                                                (b)	$10.00	$8.40
Overhead costs per unit      [Refer working note 5 ]     (c)	$10.69	$8.30
Units cost                                                               (a + b + c)	$72.69	$56.70

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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
			Expected Activity		Allocation of activity's cost	Expected Activity		Allocation of activity's cost
	(a)		(b)		(a x b)	(c)		(a x c)
Supporting direct labor	$5.00	Per direct labor hour	7,000	direct labor hours	$35,000.00	70,000	direct labor hours	$350,000.00
Batch setups	$280.00	Per setup	200	setups	$56,000.00	100	setups	$28,000.00
Safety testing	$530.00	per test	30	tests	$15,900.00	70	tests	$37,100.00
Total overhead					$106,900.00			$415,100.00
Units produced					10,000			50,000
Overhead cost per unit    [Total overhead / Units produced]					$10.69			$8.30

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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	$385,000	77,000	direct labor hours	$5.00	Per direct labor hour
Batch setups	$84,000	300	setups	$280.00	Per setup
Safety testing	$53,000	100	tests	$530.00	per test