Question

1) Look 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, N06D and M09K, about which it has provided the following data:

	N06D			M09K
Direct materials per unit	$	30.80		$	64.10
Direct labor per unit	$	6.00		$	28.00
Direct labor-hours per unit		0.20			1.00
Annual production (units)		48,800			21,300

The company's estimated total manufacturing overhead for the year is $1,866,884 and the company's estimated total direct labor-hours for the year is 31,060.

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
Supporting direct labor (DLHs)	$	1,024,980
Setting up machines (setups)		419,648
Parts administration (part types)		422,256
Total	$	1,866,884

	Expected Activity
	N06D	M09K	Total
DLHs	9,760	21,300	31,060
Setups	1,580	948	2,528
Part types	651	261	912

The manufacturing overhead that would be applied to a unit of product M09K under the activity-based costing system is closest to:

2) Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 3,000 units of Product A and 375 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor-hours per unit and Product B requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $100,720.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

			Expected Activity
Activity Cost Pool	Estimated Overhead Costs		Product A	Product B	Total
Activity 1	$	40,600	900	500	1,400
Activity 2		28,350	1,000	500	1,500
General Factory		31,770	600	300	900
Total	$	100,720

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)

The overhead cost per unit of Product B under the activity-based costing system is closest to:

Answer 1

Total manufacturing overhead applied to M09K = (Estimated overhead cost/Total Activity) *Activity Consumed

= (1024980*21300/31060 + 419648*948/2528 + 422256*261/912)

= $981,111

Cost per unit = 981,111/21300

= $46.0615 per unit

2)Total overhead assigned = (40600*500/1400 + 28350*500/1500 + 31770*300/900)

= $34,540

Per unit = 34,540/375

= $92.1067