Question

ter 4 Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: $ $ Xactive 63.80 17.20 1.4 DLHS 15,000 units Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales $ $ Pathbreaker 50.00 12.00 1 DLHS 65,000 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 $1,634,000 86,000 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: Estimated Overhead Cost $ 580, 500 360,000 639,500 54,000 $1,634,800 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 cost Expected Activity active Pathbreaker Total 21,000 65,000 86,000 200 100 300 1,500 6,58€ 8,000 < Prey 4 of 4 Next >

Answer 1

1A

Overhead rate based on direct labor-hours: $1,634,000 / 86000 = 19

1B

Unit product cost	Xactive	Pathbreaker
Direct Material	$        63.8	$             50.0
Direct labor cost	$        17.2	$             12.0
Overheads	$        26.6	$             19.0
Total	$   107.6	$           81.0

Overhead cost allocation based on direct labor hours =  DLH per unit multiplied with Overhead rate based on direct labor

2

Calculation of cost per activity
Activity	a. Total cost	b. Total activity	c. Activity rate (a/b)
Supporting dircet labor	$                     580,500	86,000	6.75
Batch setups	$                     360,000	300	1,200
Product sustaining	$                     639,500	2	319,750
General factory	$                        54,000	8,000	6.75

3

Allocation of overheads as per activity based costing
Activity	a. Cost per activity	Xactive		Pathbreaker		f. Total cost (c+e)
		b. Activity	c. Cost (a/b)	d. Activity	e. Cost (a/d)
Supporting dircet labor	$                             6.75	21,000	$              141,750	65,000	$      438,750	$      580,500
Batch setups	$                           1,200	200	$              240,000	100	$      120,000	$      360,000
Product sustaining	$                     319,750	1	$              319,750	1	$      319,750	$      639,500
General factory	$                             6.75	1,500	$                 10,125	6,500	$         43,875	$         54,000
I) Total overhead cost			$              711,625		$      922,375	$ 1,634,000
II) No of products			15,000		65,000
III) Overhead cost per unit (I/II)			47.44		14.19

Unit product cost	Xactive	Pathbreaker
Direct Material	$                           63.80	$                  50.00
Direct labor cost	$                           17.20	$                  12.00
Overheads	$                           47.44	$                  14.19
Total	$                      128.44	$                76.19