Question

Product-Costing Accuracy, Plantwide and Departmental Rates, ABC

Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:

	Product-Related Data
	Scientific	Business
Units produced per year	76,000	760,000
Prime costs	$253,000	$2,530,000
Direct labor hours	103,400	1,034,000
Machine hours	51,200	512,000
Production runs	100	150
Inspection hours	2,000	3,000
Maintenance hours	2,250	9,000

	Department Data
	Department 1	Department 2
Direct labor hours:
Scientific calculator	77,800	25,600
Business calculator	134,420	899,580
Total	212,220	925,180
Machine hours:
Scientific calculator	23,400	27,800
Business calculator	383,760	128,240
Total	407,160	156,040
Overhead costs:
Setup costs	$223,000	$223,000
Inspection costs	190,000	190,000
Power	269,000	151,000
Maintenance	198,000	229,500
Total	$880,000	$793,500

Required:

1. Compute the overhead cost per unit for each product using a plantwide, unit-based rate using direct labor hours. Round your calculations and answers to the nearest cent.

Plantwide rate	$ per direct labor hour
Overhead cost per unit:
Scientific	$ per unit
Business	$ per unit

2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required.

Departmental rates:
Department 1	$ per machine hour
Department 2	$ per direct labor hour
Overhead cost per unit:
Scientific	$ per unit
Business	$ per unit

Repeat using direct labor hours for Department 1 and machine hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required.

Departmental rates:
Department 1	$ per direct labor hour
Department 2	$ per machine hour
Overhead cost per unit:
Scientific	$ per unit
Business	$ per unit

3. Compute the overhead cost per unit for each product using activity-based costing. Round your calculations and answers to the nearest cent.

	Overhead Cost
Scientific	$ per unit
Business	$ per unit

Answer 1

1.Plantwide Rate = Total overheads/Total labor hours	1.47	per hour
Overhead cost per unit
Scientific	2.00
Business	2.00
2.Departmental rates:
Department 1	$1.56	per machine hour
Department 2	$0.70	per labor hour
Overhead cost per unit:
Scientific	2.00	per unit
Business	2.00	per unit
Overhead costs:	Department 1	Department 2	Total	Driver	Rate per Driver
Setup costs	$223,000	$223,000	$446,000	250	$1,784
Inspection costs	190,000	190,000	$380,000	5,000	$76
Power	269,000	151,000	$420,000	1,085,200	$0.39
Maintenance	198,000	229,500	$427,500	11,250	$38
Total	$880,000	$793,500	$1,673,500
3.Overhead Cost
Scientific	$5.73	per unit
Business	$1.36	per unit