Question

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 $ 68.00 $ 26.00 0.70 DLHS 10,000 units Standard $ 56.00 $ 21.20 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 $586,000 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 $ 385,000 132,000 69,000 $ 586,000 Deluxe Standard 7,000 70,000 200 100 30 70 Total 77,000 300 100

Answer 1

Direct Material Direct Labor Diret Labou hour Per unit Estimated Production Working Notes Delux 68.00 26.00 0.70|| 10000 Standard 56.00 21.20 1.40 50000 Estimated MOH Estimated Labor hours Predetermined Overhead Rate 586000 77000 7.61 530000/77000 Delux Standard Total Total Direct Labor Hours =(Units * Direct Labor Hour) 7000 70000 77000 Traditional Costing System Delux Direct Material 680000 Direct Labor 260000 Manufacturing Overheads =DLH Rate 53270 Total Manufacturing Cost 993270 Units Prodcut Cost 99.33 Standard Total 2 800000 1060000 532700 4 392700 87.85 3480000 1320000 5 85970 5385970 Determination of Activity Rate Estimated OH 385000 132000 69000 Activty Pool Supporing direct Labor Batch setup Safetry testing Base 77000 Activity Rate 5.00 440.00 690.00 300 100

Activity Based Costing System Delux Standard Total Direct Material 680000 2800000 Direct Labor 260000 1060000 Supporing direct Labor=DLH * Activity Da 35000 350000 Batch setup= Base *Activity Rate 88000 44000 Safetry testing = Base * Activity Rate 20700 48300 Total Cost 1083700 4302300 Units Prodcut Cost 108.37 86.046 3480000 1320000 385000 132000 69000 Answers 1Units Prodcut cost under Traditional Costing Delux Units Prodcu tcost 99.33 2 Unit Prodcut Cost under Activity Based costing Delux Units Prodcu tcost 108.37 Standard 87.85 Standard 86.05