Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Deluxe Standard Direct materials per unit $ 61.00 $ 49.00 Direct labor per unit $ 19.00 $ 15.60 Direct labor-hours per unit 0.70 DLHS 1.40 DLHS Estimated annual production 10,000 units 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 $ 481,000 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 $ 308,000 111,000 62,000 $ 481,000 Deluxe 7,000 200 30 Standard 70,000 100 70 Total 77,000 300 100 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

Answer 1

1) Estimated total mfg. overhead cost Estimated direct labor hours Predetermined overhead rate/DLH $481,000 77,000 (7000 + 70000] $6.25 ($481000 / 77000 DLHs] Deluxe Standard 0.70 1.40 Direct labor hours/unit Direct material cost/unit Direct labor cost/unit Mfg. Overhead cost/unit Unit product cost $61.00 $19.00 $4.38 $84.38 $49.00 $15.60 $8.75 [0.70 DLHs x $6.25; 1.40 DLHs x $6.25] $73.35 (b) Activitas Activity Cost Pool Supporting DL cost Batch setup Safety testing Cost Driver DL hours # of setups # of testings Activity Cost $308,000 $111,000 $62,000 (a)/(b) Volume Activity Rate 77,000 $4.00 300 $370.00 100 $620.00 (u) (v) Activity costs assigned to Deluxe: Supporting DL cost Batch setup Safety testing Activity Activity Rate Usage $4.00 7,000 $370.00 200 $620.00 Total activity cost assigned (u) x (v) Activity Cost $28,000 $74,000 $18,600 $120,600 30