Question

Traditional Product Costing Versus Activity-Based Costing
High Country Outfitters, Inc., makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The accounting department has identified the following overhead costs and cost drivers for next year:

Overhead Item	Expected Costs	Cost Driver	Maximum Quantity
Setup costs	$1,216,800	Number of setups	7,200
Ordering costs	312,000	Number of orders	60,000
Maintenance	1,200,000	Number of machine hours	80,000
Power	120,000	Number of kilowatt hours	600,000

Total predicted direct labor hours for next year is 60,000. The following data are for two recently completed jobs:

	Job 201	Job 202
Cost of direct materials	$15,000	$16,500
Cost of direct labor	$20,625	$72,750
Number of units completed	1,125	915
Number of direct labor hours	270	330
Number of setups	18	22
Number of orders	24	45
Number of machine hours	540	450
Number of kilowatt hours	270	360

a. Determine the unit cost for each job using a traditional company-wide overhead rate based on direct labor hours.
Round rate to two decimal places.
Overhead rate per direct labor hour $Answer

Mark 0.00 out of 1.00

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

	Job 201	Job 202
Direct materials	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Direct labor	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Overhead	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Total job cost	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Units	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Per unit cost	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00

b. Determine the unit cost for each job using ABC. Activity-based overhead rates:

Round answers to two decimal places, if needed.

Setup costs	Answer Mark 0.00 out of 1.00 per setup
Ordering costs	Answer Mark 0.00 out of 1.00 per order
Maintenance costs	Answer Mark 0.00 out of 1.00 per machine hour
Power	Answer Mark 0.00 out of 1.00 per kwh

NOTE: Round all answers (except cost per unit) to the nearest whole number, when applicable. Round cost per unit answers to two decimal places.  

	Job 201	Job 202
Direct materials	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Direct labor	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Overhead
Setup cost	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Ordering costs	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Maintenance costs	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Power	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Total job costs	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Units produced	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00
Cost per unit	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00

Answer 1

(a) Unit cost for each job using a traditional company-wide overhead rate based on direct labor hours.

Overhead recovery rate= 2,848,800/60000= 47.48 per DL hour

	Job 201	Job 202
Direct materials	15,000	16,500
Direct labor	20,625	72,750
Overhead	12,820	15,668
Total job cost	48,445	1,04,918
Units	1,125	915
Per unit cost	43.06	114.66

(B) Activity-based overhead rates

Setup costs	1,216,800/7200= 169 per setup
Ordering costs	312,000/60,000= 5.2 per order
Maintenance costs	1,200,000/80,000= 15 per machine hour
Power	120,000/600,000= 0.2 per kilowatt hour

Unit cost for each job under ABC

	Job 201	Job 202
Direct materials	15,000	16,500
Direct labor	20,625	72,750
Overhead
Setup cost	3042	3718
Ordering costs	124.8	234
Maintenance costs	8100	6750
Power	54	72
Total job costs	46,946	1,00,024
Units produced	1,125	915
Cost per unit	41.73	109.32