Question

Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales Xactive $64.90 S 18.30 1.4 DLHS 26,000 units Pathbreaker $ 51.10 $ 13.10 1 DLHS 76,000 units The company has a conventional 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 $2,259,240 112,400 DLHS Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours. 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Expected Activity Xactive Pathbreaker Total 36,400 76,000 112,400 255 155 410 Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) General factory (machine-hours) Total manufacturing overhead cost Overhead Cost $ 820,520 717,500 646,760 74,460 _ $2,259,240 2,600 7,600 10,200

Answer 1

Answer to Question 1-a and 1-b:

Question 1-a Predetermined Overhead Rate = Total Overheads/Direct Labor Hours Predetermined Overhead Rate = $2,259,240/112,400 Predetermined Overhead Rate = $20.10 per direct labor hour Pathbreaker $ 51.10 Question 1-b Xactive Direct Material per unit $ 64.90 Direct Labor per unit $ 18.30 Overhead Cost per unit $ 28.14 Calculation ($20.10 X 1.4) Unit Product Cost $ 111.34 $ 13.10 $ 20.10 ($20.10 X 1) $ 84.30

Answer to Question 2:

Question 2 Calculation of activity rates Activity Rate = Cost/Activity Cost Driver Activity Cost Activity Cost Drivers Activity rate Calculation $ Supporting direct labor Batch Setups Product sustaining General Factory Total Overheads 820,520 112,400 direct labor hours $ 717,500 410 setups $ 646,760 2 products $ 74,460 10,200 machine hours $ 2,259,240 7.30 Per DLH 1,750 Per Setup 323,380 Per Product 7.30 Per MHR (820,520/112,400) (717,500/410) (646,760/2) (74,460/10,200) $

Answer to Question 3:

Question 3 Supporting direct labor Calculation Batch Setups Calculation Product sustaining General Factory Calculation Total Cost 322 > Xactive Pathbreaker 265,720.00 $ 554,800.00 ($7.30 X 36,400) ($7.30 X 76,000) $ 446,250.00 $ 271,250.00 ($1,750 X 255) ($1,750 X 1\55) 323,380.00 $ 323,380.00 $ 18,980.00 $ 55,480.00 ($7.30 X 2,400) ($7.30 X 7,600) $ 1,054,330.00 $ 1,204,910.00 ($265,720 + $446,250 ($554,800 + $271,250 + + $323,380 + $18,980) $323,380 + $55,480) 26,000 76,000 $ 40.55 $ 15.85 Calculation Number of Units Overhead cost per unit Calculation Direct Material per unit Direct Labor per unit Unit Product Cost Calculation $ 64.90 $ 51.10 18.30 $ 13.10 123.75 $ 80.05 (40.55 + 64.90 + 18.30) (15.85 + 51.10 + 13.10)