Question

stillicum

Chapter 2 and 2A required A Seved Help Save & Exit Submit 8. Check my work Stilicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Deluxe 72.00 S 19.00 1.0 DLs 10,000 units Standard 53.00 15.20 0. DERS 50,000 units Direct materials per unit Direct laber per unit Direct labor-hours per unit Estimated annual production points The company has a traditional 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: eook Prine Estimated total manufacturing eoverhead Estimated total direet labor-hours $325,000 50,000 DEHa References Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools: Expected Activity Eatimated Overhead Cont $ 200,000 75,000 50,000 S 325, 000 Activity Cost Poola and Activity Measures Supporting direct labor (direet labor-hours) Bateh setups (setupe) Safety testing (testa) Total manufacturing overhead cost Deluxe Standard 10,000 200 30 Total 50,000 300 100 40,000 100 70 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. Graw < Prev 8 of 8 Next > MacBook Alr 00

Answer 1

Dear Student , below answer completely based on Traditional costing system Vs Activity based costing system ,

Activity based costing system - always give more detail picture after allocation of Manufacturing Overhead .

Please see detail working in this matter .

Thank you

	Deluxe	Standard
Direct Material $/ Unit	72.0	53.0
Direct Labour $/ Unit	19.0	15.2
Direct Labour hrs/ Unit	1.00	0.80
Estimated actual production	10,000	50,000
Traditional costing system
Estimated total manufacturing OH $			3,25,000
Estimated total Direct labour hrs			50,000
Calculate Unit product cost- Traditional base
Overhead rate per hour($/ Hr	$325000/50,000 Hrs		6.50

Total cost of unit under " Traditional Method"  

	Deluxe	Standard
Direct Material $/ Unit	72.00	53.00
Direct Labour $/ Unit	19.00	15.20
Overhead $/ Unit
Rate / Hr * Direct labour hrs /unit
(6.50*1 ) - Deluxe	6.50
(6.50*0.8 ) - Standard		5.20
Total cost at unit level	97.50	73.40

Company moving from Tradirional system to Activity based costing system ( ABC ) , derived cost accordingly
Activity cost pool + activity measures	Estimated Overhead cost $-A	Expected activity		Total-B	Activity wise OH rate (A/B)
		Deluxe	Standard
Supporting direct Labour cost	2,00,000	10,000	40,000	50,000	4.0
Batch set up ( Set up cost)	75,000	200	100	300	250.0
Safety Testing	50,000	30	70	100	500.0
Total manufacturing OH cost	3,25,000

Now use common Activity wise OH cost rate into individual level - Deluxe + Standard
	Deluxe $	Standard $
Supporting direct Labour cost	40,000	1,60,000
( 10000*4)
( 40000*4)
Batch set up ( Set up cost)	50,000	25,000
( 200*250)
( 100*250)
Safety Testing	15,000	35,000
( 30*500)
( 70*500)
Total Manufacturing OH Cost-C	1,05,000	2,20,000
Units Manufactured -D	10,000	50,000
Rate $/ unit- Overhead(C/D)	10.50	4.40
As per ABC based costing method - Unit cost of production would be
	Deluxe	Standard
Direct Material $/ Unit	72.00	53.00
Direct Labour $/ Unit	19.00	15.20
Overhead $/ Unit ( as calculated above)	10.50	4.40
Total cost at unit level	101.50	72.60