Question

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

   

	Direct Labor-Hours per unit	Annual Production
Rims	0.40	20,000 units
Posts	0.20	80,000 units

Additional information about the company follows:

1. Rims require $17 in direct materials per unit, and Posts require $10.
2. The direct labor wage rate is $16 per hour.
3. Rims are more complex to manufacture than Posts and they require special equipment.
4. The ABC system has the following activity cost pools:

		Estimated Activity
Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Rims	Posts	Total
Machine setups	Number of setups	$	21,600	100	80	180
Special processing	Machine-hours	$	180,000	4,000	0	4,000
General factory	Direct labor-hours	$	288,000	8,000	16,000	24,000

2. Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

unit product cost of rims: ?

Unit product cost of posts: ?

Answer 1

Answer

• Requirement 2

Unit product cost of Rims	$                       37.00
Unit product cost of Posts	$                       15.72

• Workings

	Overhead cost	Activity	Activity rates
	[A]	[B]	[C = A/B]
Machine Setup	$21,600	180	$120.00	per setup
Special Processing	$180,000	4,000	$45.00	per MH
General factory	$288,000	24,000	$12.00	per DLHs

	Manufacturing Overhead cost:	Rims		Posts
	Machine Setup	$12,000	100 x $ 120	$9,600	80 x $ 120
	Special Processing	$180,000	4000 x $ 45	$0	0 x $ 45
	General factory	$96,000	8000 x $ 12	$192,000	16000 x $ 12
A	Total Overhead cost allocated	$288,000		$201,600
B	Total Units	20,000		80,000
C = A/B	Overhead cost per unit	$                       14.40		$                                   2.52
D	Direct Material	$                       17.00		$                                10.00
E	Direct Labor Cost	$                         5.60	[0.4 hrs x $ 16]	$                                   3.20	[0.2 hrs x $ 16]
F = C+D+E	Answer: Unit Cost	$                       37.00		$                                15.72