Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data:
Slow | Fast | ||||||
Direct materials per unit | $ | 14.10 | $ | 43.40 | |||
Direct labor per unit | $ | 3.20 | $ | 25.60 | |||
Direct labor-hours per unit | 0.20 | 1.60 | |||||
Annual production | 47,000 | 32,000 | |||||
The company's estimated total manufacturing overhead for the
year is $1,866,700 and the company's estimated total direct
labor-hours for the year is 60,600.
The company is considering using a variation of activity-based
costing to determine its unit product costs for external reports.
Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures | Estimated Overhead Cost | |||
Assembling products (DLHs) | $ | 890,000 | ||
Preparing batches (batches) | 447,700 | |||
Product support (product variations) | 529,000 | |||
Total | $ | 1,866,700 | ||
Expected Activity | |||||
Slow | Fast | Total | |||
DLHs | 9,400 | 51,200 | 60,600 | ||
Batches | 1,720 | 1,750 | 3,470 | ||
Product variations | 1,080 | 1,050 | 2,130 | ||
The manufacturing overhead that would be applied to a unit of product Slow under the company's traditional costing system is closest to:
Multiple Choice
$11.13.
$17.29.
$6.16.
$2.89.
Total Manufacturing Overhead | $18,66,700 | |
Total Direct labor hours | 60600 | hours |
Predetermined overhead rate($1,866,700/60,600 hours) | $30.80 | |
Manufacturing Overhead allocated to Slow(9400 hours*$30.80) | $2,89,554 | |
No. of units produced | 47000 | units |
Manufacturing Overhead per unit | $6.16 | |
So Option C is answer |
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