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 Pathbreaker 65.20 $ $1.40 18.60 $ 13.40 1.4 DLHS 1 DLA 29,000 units79,000 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 $2,439,840 119.600 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: 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 coat Estimated Overhead Cont $ 891.020 836.000 632.360 80,460 $2.439,840 Expected Activity a ct Ive Pathbreaker Total 40,600 79,000 119.600 270 170 440 2 2,900 2,900 10,800 Determine the activity rate for each of the four activity cost pools 3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) 3 Predertmined Overhead Rate = estimated overheads / number of estimated direct labour hours 4 = 2439840/119600 5 = $ 20.4 7 Thus the correct answer predetermied overhead rate = $ 20.4 9 Part 2) 11 12 13 Direct Material 14 Direct Labour 15 Overheads 16 17 Unit Product Cost Calculation of Unit Product Cost Xactive Pathbreaker 65.2 18.6 28.56 (20.4*1.4) (20.4*1 112.36 51.4 13.4 20.4 85.2 18 19 Thus the correct answer is Xactive 112.36 Pathbreaker 85.2 21 Unit Product Cost 22

Part 3) Overheads - Activity Cost Pool - Supporting Direct Labour Batch Set ups Product Sustaining General Factory Activi Activity 891020 836000 632360 80460 119600 440 21 10800 Activity Rate 7.45 Per DLH 1900 Per Set up 316180 Per Product 7.45 Per MHR Thus the final answer is Activity Cost Pool Supporting Direct Labour Batch Set ups - Product Sustaining General Factory Activity Rate 7.45 Per DLH 1900 Per Set up 316180 Per Product 7.45 Per MHR

Part 4) Activity Cost Pool Supporting Direct Labour Batch Set ups Product Sustaining General Factory Total No. of units Cost Per Unt Activity Rate 7.45 Per DLH 1900 Per Set up 316180 Per Product 7.45 Per MHR 270) Xactive Pathbreaker Activity Overheads allocated Activity Overheads allocated 40600 302470 79000 588550 513000 170 323000 316180 316180 2900 21605 7900 58855 1153255 1286585 29000 39.77 79000 16.29 Direct Material Direct Labour Overheads Unit Product Cost Calculation of Unit Product Cost Xactive Pathbreaker 65.2 51.4 18.6 13.4 39.77 16.29 123.57 81.09 Thus the final answer Xactive Pathbreaker 123.57 Unit Product Cost 81.09