Question

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	3.0	4,000 units	12,000
Model N 500	1.0	13,000 units	13,000
			25,000

Additional information about the company follows:

a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $30.

b. The direct labor wage rate is $17 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	$	520,000
Special processing	Machine-hours		235,000
General factory	Direct labor-hours		1,445,000
		$	2,200,000

	Expected Activity
Activity Measure	Model N 800 XL	Model N 500	Total
Number of setups	150	250	400
Machine-hours	20,000	0	20,000
Direct labor-hours	12,000	13,000	25,000

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.

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.

Answer 1

Ansuky: @ compert the predetermined overhead rate : pocketermined roete per DLH = 2,300,000 25,000 = $88 por DLH ...predetermined rate per D_H = $88 per Delt G comperte the unit proderet.cost dle Each moctel: model N. 800 Total cost = Dircet mesterials + Dreet lchor tochead .= $70+(3x1:1) +(3%88) = $70+51+264 :=$385 i model w 800 total cost = $385) model N sool Total cost = Dircet morterials + Direct laboy touched

= $30+ (1x17) + (1x88) = $38 + r7 +88 = $135 os model N 500 total cost = $135| 2-a) cal cellation de predetermined al location rate: predetermined allocation. machine setups = Total cost allocation base = $520,000 400 = 1300 peresclup. ssing 235,000 20,000 = 11.75 por machine hour. General factory = 1445,000 25,000 = 57.8 por DLH: => 520,000+ 235,000 +1445000 2,200,000 .

2 am model N800; Total cost of machine setups - Activity Driver x activity rate = 150 X 1300 = 195,000 Total cost do siecial processing = 80,000% 11.75 = 235,000.: Total cost of general factory - 4 = 12,000 X 57.3 693, 600 => 195,000 -4235,000 +693,600 = 1123600 overhead cost per wit = " wit 1123600 4,000 units = 280.9. 281. overhead cost for unit 81-/

mocede nu 500; Total cost, machine selups & activity Drivery attivity vete innvolürty karte = 250 X 1300 $325,000 processing - OX 14 15 General -factory = 13,000x518 = 751,400 = > 325,000 to +75 1,400 = 1076400 OH Cost percurrt 1076400 13,00 ouniels 88 83. o-corhead coast per unit =83. by model in 800 Total coste Direel mezterials + Direet labor it overhead = 70+(3X17) +081 2 402.

model N soor Toted cost = Direet Merterials + Direct labort overladt S. = 30+ (1x 17) +83 - 130