Question

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 48,000 units next year and Product L is expected to sell 9,600 units. A unit of either product requires 0.7 direct labor-hours.

The company's total manufacturing overhead for the year is expected to be $3,427,200.

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 $1,713,600 assigned to Product H and $1,713,600 assigned to Product L.

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

Complete this question by entering your answers in the tabs below.

• Req 1A
• Req 1B
• Req 2

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? (Round your answers to 2 decimal places.)

	Product H Product L Overhead cost per unit

2.

Sultan Company uses an activity-based costing system.

At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools:

Activity Cost Pool	Activity Measure	Expected Overhead Cost			Expected Activity
Labor-related	Direct labor-hours	$	270,900		30,100		DLHs
Purchase orders	Number of orders	$	11,745		261		orders
Parts management	Number of part types	$	78,570		97		part types
Board etching	Number of boards	$	72,400		1,810		boards
General factory	Machine-hours	$	212,400		17,700		MHs

Required:

1. Compute the activity rate for each of the activity cost pools.

2. The expected activity for the year was distributed among the company’s four products as follows:

	Expected Activity
Activity Cost Pool	Product A			Product B			Product C			Product D
Labor-related (DLHs)		7,100			13,800			4,000			5,200
Purchase orders (orders)		78			37			47			99
Parts management (part types)		38			15			30			14
Board etching (boards)		550			740			520			0
General factory (MHs)		2,900			6,200			3,900			4,700

Using the ABC data, determine the total amount of overhead cost assigned to each product.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Compute the activity rate for each of the activity cost pools.

	Activity Cost Pool Activity Rate Labor-related per DLH Purchase orders per order Parts management per part type Board etching per board General factory per MH

Using the ABC data, determine the total amount of overhead cost assigned to each product.

	Overhead Cost Assigned Activity Cost Pool Product A Product B Product C Product D Labor-related (DLHs) Purchase orders (orders) Parts management (part types) Board etching (boards) General factory (MHs) Total

Answer 1

Activity rate = Overhead Cost / Expected Activity
Activity Cost Pool	Activity Measure	Expected			Expected Activity			Activity rate
		Overhead Cost
Labor-related	Direct labor-hours	$	2,70,900		30,100		DLHs	$         9.0	DLHs
Purchase orders	Number of orders	$	11,745		261		orders	$       45.0	orders
Parts management	Number of part types	$	78,570		97		part types	$    810.0	part types
Board etching	Number of boards	$	72,400		1,810		boards	$       40.0	boards
General factory	Machine-hours	$	2,12,400		17,700		MHs	$       12.0	MHs

Overhead Cost To be Assign = Activity Rate * Activity for that product
Overhead Cost Assigned
Activity Cost Pool	Product A	Product B	Product C	Product D
Direct labor-hours	7100	13800	4000	5200
Labor-related (DLHs)	$     63,900.0	$1,24,200.0	$   36,000.0	$   46,800.0
Purchase orders (orders)	78	37	47	99
Purchase orders (orders)	$      3,510.0	$     1,665.0	$     2,115.0	$     4,455.0
Parts management (part types)	38	15	30	14
Parts management (part types)	$     30,780.0	$   12,150.0	$   24,300.0	$   11,340.0
Board etching (boards)	550	740	520	0
Board etching (boards)	$     22,000.0	$   29,600.0	$   20,800.0	$             -
General factory (MHs)	2900	6200	3900	4700
General factory (MHs)	$     34,800.0	$   74,400.0	$   46,800.0	$   56,400.0
Total	$ 1,54,990.0	$2,42,015.0	$1,30,015.0	$1,18,995.0

Let me know the wrong answers if any.