Question

Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 58,000 units of EX300 and 12,300 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:

	EX300			TX500			Total
Direct materials	$	364,325		$	160,550		$	524,875
Direct labor	$	118,000		$	41,500		$	159,500

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)	Manufacturing Overhead			EX300			TX500			Total
Machining (machine-hours)	$	209,300			88,000			61,500			149,500
Setups (setup hours)		131,100			65			280			345
Product-level (number of products)		83,870			1			1			2
General factory (direct labor dollars)		54,230		$	118,000		$	41,500		$	159,500
Total manufacturing overhead cost	$	478,500

Required:

1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system.

1-b. Using the plantwide rate, compute the unit product cost for each product.

2-a. Compute the activity rate for each activity cost pool.

2-b. Using the activity rates, compute the unit product cost for each product.

1-a.

Compute the plantwide overhead rate that would be used in the company’s conventional cost system. (Round your answer to 2 decimal places.)

	Predetermined overhead rate. Per DL$

1-b.

Using the plantwide rate, compute the unit product cost for each product. (Round your intermediate calculations and final answers to 2 decimal places.)

	EX300 TX500 Unit product cost

2-a.

Compute the activity rate for each activity cost pool. (Round your Machining and General factory activity rates to 2 decimal places.)

	Activity Cost Pools Activity Rate Machining per MHR Setups per setup hr. Product-level per product General factory per DL$

2-b.

Using the activity rates, compute the unit product cost for each product. (Round your intermediate calculations and final answers to 2 decimal places.)

	EX300 TX500 Unit product cost

Answer 1

1-a) Total manufacturing overhead cost Total direct labor dollars Plantwide overhead rate per direct labor dollar $478,500 $159,500 $3.00 [$478500 / $159500] 1-b) Direct labor dollars Plantwide overhead rate per direct labor dollar Overhad costs allocated to each product Add: Direct materials Add: Direct labor cost Total manufacturing costs recorded Number of units produced Unit product cost EX300 $118,000 $3.00 $354,000 $364,325 $118,000 $836,325 58,000 $14.42 TX500 $41,500 --> (a) $3.00 --> (b) $124,500 --> (a) x (b) $160,550 $41,500 $326,550 --> (p) 12,300 --> (9) $26.55 --> (p)/(9) 2-a) Activity Cost Pool Machining Setups Product-level General factor Cost Driver machine-hours setup hours number of products direct labor dollars Activity Cost $209,300 $131,100 $83,870 $54,230 Volume Activity Rate 149,500 $1.40 [$209300 / 149500] 345 $380.00 ($131100 / 345] 2 $41,935.00 ($83870 / 2] $159,500 $0.34 ($54230 / $159500]

Activity Activity 2-b) Activity costs assigned to EX300: Rate Usage Machining $1.40 88,000 Setups $380.00 65 Product-level $41,935.00 1 General factor $0.34 118,000 Activity costs assigned to EX300: Add: Direct materials Add: Direct labor cost Total manufacturing costs recorded Number of units produced Unit product cost Activity Cost $123,200 ($1.4 x 88000] $24,700 [$380 x 65] $41,935 ($41935 x 1] $40,120 ($0.34 x $118000] $229,955 $364,325 $118,000 $712,280 --> (p) 58,000 --> (9) $12.28 -->(p)/(q)

Activity Activity Activity costs assigned to TX500: Rate Usage Machining $1.40 61,500 Setups $380.00 280 Product-level $41,935.00 1 General factor $0.34 $41,500 Activity costs assigned to TX500: Add: Direct materials Add: Direct labor cost Total manufacturing costs recorded Number of units produced Unit product cost Activity Cost $86,100 ($1.4 x 61500] $106,400 ($380 x 280] $41,935 ($41935 x 1] $14,110 ($0.34 x $41500] $248,545 $160,550 $41,500 $450,595 --> (p) 12,300 --> (9) $36.63 --> (p)/ (9)

Answer 2

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