Question

Lillich, Inc., manufactures and sells two products: Product U6 and Product R5. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product U6	750	9.5	7,125
Product R5	1,120	6.5	7,280
Total direct labor-hours			14,405

The direct labor rate is $27.60 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product U6	$250.40
Product R5	$167.80

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product U6	Product R5	Total
Labor-related	DLHs	$	201,638	7,125	7,280	14,405
Production orders	orders		72,840	1,350	1,250	2,600
Order size	MHs		1,020,608	6,500	6,800	13,300
		$	1,295,086

Which of the following statements concerning the unit product cost of Product U6 is true? (Round your intermediate calculations to 2 decimal places.)

rev: 03_25_2018_QC_CS-119201

• The unit product cost of Product U6 under traditional costing is greater than its unit product cost under activity-based costing by $340.31.

• The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $5.63.

• The unit product cost of Product U6 under traditional costing is greater than its unit product cost under activity-based costing by $5.63.

• The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $340.31.

Answer 1

1) Overhead rate per hour = 1295086/14405 = 89.91 per DLH

Unit product cost under traditional costing = 250.40+(9.5*27.60)+(9.5*89.91) = 1366.75

Calculate unit product cost under ABC Costing

	Product U6
Labor related	99734
Production orders	37821
Order size	498793
Total overhead	636348
Unit	750
Overhead cost per unit	848.46
Direct material	250.40
Direct labor	262.20
Total	1361.06

The unit product cost of Product U6 under traditional costing is greater than its unit product cost under activity-based costing by $5.63.