Question

Check Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production Deluxe $ 66.00 $ 24.00 0.70 DLHS 10,000 units Standard $ 54.00 $ 19.60 1.40 DLHS 50,000 units 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: Estimated total manufacturing overhead Estimated total direct labor-hours $578,000 77,000 DLHS 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 Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Safety testing (tests) Total manufacturing overhead cost Estimated Overhead Cost $ 385,000 126,000 67,000 $ 578,000 Deluxe 7,000 200 30 Standard 70,000 100 Total 77,000 300 100 70 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

Answer 1

Req 1)
Predetermined Manufacturing overhead rate =
Estimated total manufacturing overhead / Estimated total DLHs
578000 / 77000 = 7.51 per DLH
Unit Product Cost:
	Deluxe	Standard
DM	66	54
DL	24	19.6
Manuf. OH	0.7*7.51=5.26	1.4*7.51 = 10.51
Unit Product cost, $	95.26	84.11
Req 2)
Overhead cost per unit as per Activity based absorption:
Activity	Total Overhead	Deluxe		Standard
		ratio	Amount $	ratio	Amount $
Supporting DL	385000	0.09	35000	0.91	350000
Batch setups	126000	0.67	84000	0.33	42000
Safety testing	67000	0.30	20100	0.70	46900
Total bifercated overhead			139100		438900
estimated annual units produced			10000		50000
Overhead per unit			13.91		8.78
Unit Product Cost:
	Deluxe	Standard
DM	66	54
DL	24	19.6
Manuf. OH	13.91	8.78
Unit Product cost, $	103.91	82.38