Question

I ALWAYS THUMBS UP, THANKS!

Precision Manufacturing Inc. (PMI) makes two types of industrial component parts--the EX300 and the TX500. It annually produces 70,000 units of EX300 and 13,500 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials Direct labor EX300 $376,325 $130,000 TX500 $172,550 $ 47,500 Total $548,875 $177,500 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-level (number of products) General factory (direct labor dollars) Manufacturing Overhead $ 175,875 262,500 202,400 86,975 EX300 100,000 125 TX500 67,500 400 Total 167,500 525 $ 130,000 $ 47,500 $177,500 Total manufacturing overhead cost $727,750

Answer 1

1-a) Predetermined overhead rate = Estimated total manufacturing overhead/Total direct labor dollars Predetermined overhead rate = (727750/177500) Predetermined overhead rate = $ 4.10 per DLS 1-b) Determination of Unit product cost using Predetermined overhead rate :- Particulars EX 300 TX 500 Direct material cost 376,325 172,550 Direct labor cost 130,000 47,500 Applied overhead 533,000 194,750 Total Cost 1,039,325 414,800 No of units produced 70,000 13,500 Unit product cost 14.85 30.73 Expected Activity Activity Rate 2-a) Determination of Activity rates :- Estimated Activity cost pool Overhead Cost Machining 175,875 Setups 262,500 Product-level 202,400 General factory 86,975 727,750 167,500 525 2 177,500 1.05 Per Machine hour 500.00 Per Setup 101,200.00 Per Product 0.49 Per Direct labor dollar 2-b) Determination of Unit product cost using Activity based costing :- Particulars EX 300 TX 500 Direct material cost 376,325 172,550 Direct labor cost 130,000 47,500 Applied overhead :- Machining 105,000 70,875 Setups 62,500 200,000 Product-level 101,200 101,200 General factory 63,700 23,275 Total applied overhead 332,400 395,350 Total cost 838,725 615,400 No of units produced 70,000 13,500 Unit product cost 11.98 45.59