Question

Exercise 4-10 Contrasting ABC and Conventional Product Costs (L04-2, LO4-3, LO4-4] Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: $ $ Xactive 64.70 18.10 1.4 DLHS 24,000 units Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales $ $ Pathbreaker 50.90 12.90 1 DLHS 74,000 units The company has a conventional 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 $2,141, 240 107,600 DLHS

Answer 1

Part 1
	Predtermined Overhead rate =Estimated manufacturing overhead / Estimated direct labor hours
	Predtermined Overhead rate =$2,141,240 / 107,600 Dlhs =$19.90 per DLHs
	Computation of units product cost
		Xactive	Pathbreaker
	Direct material per unit	$                                           64.70	$                                  50.90
	Direct labor cost per unit	$                                           18.10	$                                  12.90
	Overhead per unit(DLH per unit*$19.90)	$                                           27.86	$                                  19.90
	Unit Product cost	$                                         110.66	$                                  83.70
Part 2	Calculation of Activity Rate
	Activity	Activity Cost(Col 1)	Cost Driver(Col 2)	Activity Rate(Col 1 / Col.2)
	Supporting direct labor	$                                      7,74,720	107600 DLHs	$                               7.20	Per Dlhs
	Batch setups	$                                      6,43,500	390 setups	$                        1,650.00	Per setup
	Product susutaining	$                                      6,52,460	2 products	$                   3,26,230.00	Per product
	General Factory	$                                         70,560	9800 MHs	$                               7.20	Per Mhs
	Allocation of Activity Costs		Activity Rate * Activity-Base Usage
		Activity Rate	Xactive	Pathbreaker	Total
	Supporting direct labor	$                                             7.20	$                             2,41,920	$                        5,32,800	$                             7,74,720
	Batch setups	$                                      1,650.00	$                             4,04,250	$                        2,39,250	$                             6,43,500
	Product susutaining	$                                 3,26,230.00	$                             3,26,230	$                        3,26,230	$                             6,52,460
	General Factory	$                                             7.20	$                                17,280	$                           53,280	$                                70,560
	Total Overhead Costs		$                             9,89,680	$                      11,51,560	$                           21,41,240
	Computation of units product cost
		Xactive	Pathbreaker
	Direct material per unit	$                                           64.70	$                                  50.90
	Direct labor cost per unit	$                                           18.10	$                                  12.90
	Overhead per unit(Total Overhead Costs/no. of units produced)	$                                           41.24	$                                  15.56
	Unit Product cost	$                                         124.04	$                                  79.36