Question

National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.

Model	Annual Sales in Units
High F	11,100
Great P	17,100

National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

	High F			Great P
Direct materials	$	39.10		$	26.50
Direct labor	$	18.70		$	14.30

Budget factory overhead:
Engineering and Design	2,620	engineering hours	$	445,400
Quality Control	13,050	inspection hours		336,700
Machinery	33,930	machine hours		608,940
Miscellaneous Overhead	26,610	direct labor hours		132,550
Total			$	1,523,590

National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities:

	High F	Great P
Engineering and design hours	1,070	1,550
Quality control inspection hours	5,750	7,300
Machine hours	20,390	13,540
Labor hours	12,110	14,500

Using activity-based costing, applied engineering and design factory overhead for the High F model per unit is: (Rounded to the nearest cent.)

Multiple Choice

• $5.43.

• $13.37.

• $16.39.

• $32.97.

• $68.15.

Answer 1

Answer : $ 16.39

Under Activity Based Costing :

Applied engineering overhead Rate

= Estimated Engineering and Design / Estimated Engineering Hours

= 445,400/ 2,620 = 170

for High F

Engineering overheads applied = Rate * Engineering Hours

= 1070*170 = 181900

Per Unit Engineering Cost = 181900/11,100= $16.39 (Answer)