Question

	Activity Cost Pool Activity Rate Labor-related per DLH Machine-related per MH Machine setups per setup Production orders per order Product testing per test Packaging per package General factory per DLH

2.

Required information

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Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools:

Activity Cost Pool	Estimated Overhead Cost			Expected Activity
Labor-related	$	19,600		10,000	direct labor-hours
Machine-related	$	7,000		7,000	machine-hours
Machine setups	$	23,400		600	setups
Production orders	$	16,500		500	orders
Product testing	$	22,400		800	tests
Packaging	$	62,900		3,700	packages
General factory	$	60,000		10,000	direct labor-hours

2. Compute the company's predetermined overhead rate, assuming that the company uses a single plantwide predetermined overhead rate based on direct labor-hours. (Round your answer to 2 decimal places.)

3.

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 49,000 units next year and Product L is expected to sell 9,800 units. A unit of either product requires 0.6 direct labor-hours.

The company's total manufacturing overhead for the year is expected to be $2,998,800.

Required:

1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product?

1-b. Compute the total amount of overhead cost that would be applied to each product.

2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $1,499,400 assigned to Product H and $1,499,400 assigned to Product L.

If this suggestion is followed, how much overhead cost per unit would be assigned to each product?

Answer 1

Answer with working is given below

Activity Rate Activity Cost Pool $1.96 per DLH $1.00 per MH $39.00 per setup Labor-related Machine-related Machine setups Production orders Product testing Packaging General factory $33.00 per order $28.00 per test $17.00 per package $6.00 per DLH A/B 2 B Expected Activity Activity Cost Pool Estimated Activity loverhead Cost Rate $19,600 $7,000 $ 23,400 $16,500 $22,400 $62,900 $60,000 $1.96 Labor-related 10,000 direct labor-hours $1.00 Machine-related 7,000 machine-hours Machine setups $39.00 $33.00 $28.00 600 setups 500 orders 800 tests 3,700 packages Production orders Product testing $17.00 Packaging General factory Total Overheads $6.00 10,000 direct labor-hours 211,800 Pre-determined overhead rate Total overheads Total Direct Labor hours $211,800 $21.18 Per Direct Labor hour 10,000 Product L Total Product H 1-a Production 9,800 49,000 Direct labor hour / unit 0.60 0.60 29,400 Total Direct Labor hours 5,880 35,280 Overhead Rate per Direct labor hour Total manufacturing overheads Total Direct Labor hours $2,998,800 $85.00 Per Direct Labor hour 35,280 Overhead cost per unit = Direct labor hour per unit X $85 per labor hour (0.60 * $85) = $51 per unit will be applied as overhead 1-b Product H Product L Total Direct Labor hour Overhead rate per hour Total Overhead allocated 29,400 $85.00 $2,499,000 5,880 $85.00 $499,800 $2,998,800 Alternatively Product H Product L Total Total production loverhead rate per unit 49,000 $51.00 $2,499,000 9,800 $51.00 $499,800 $2,998,800 Total Overhead allocated Activity based costing system Product L Product H Total Total Overhead allocated Total production Overhead cost per unit $1,499,400 49,000 $30.60 $1,499,400| 9,800 $153.00 $2,998,800