Question

Exercise 4-10 Contrasting ABC and Conventional Product Costs (L04-2, LO4-3, L04-4] Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: points $ $ Xactive 64.80 18.20 1.4 DLHS 25,000 units Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales $ $ Pathbreaker 51.00 13.00 1.0 DLHS 75,000 units eBook 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: Print References Estimated total manufacturing overhead Estimated total direct labor-hours $2,200,000 110,000 DLHS Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours. 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Estimated Overhead Cost $ 797,500 680,000 650,000 72,500 $2,200,000 Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) General factory (machine-hours) Total manufacturing overhead cost Expected Activity Xactive Pathbreaker Total 35,000 75,000 110,000 250 150 400 2,500 7,500 10,000 Determine the activity rate for each of the four activity cost pools. 3. Using the activity rates and other data from the problem, determine the unit product cost of each product. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2 Req 3 Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. Xactive P athbreaker Unit product cost < Req 1A Reg 2 >

Answer 1

1.a calculations of overhead applied under traditional method. $ Divide Estimated Overhead Estimated direct labor hours Predetermined Overhead rate 2,200,000 110000 20.00 $ 1.b Calculations of unit cost under traditional method. Xactive Direct Material Direct Labor Overhead cost Total Unit Cost $ $ $ $ 64.80 18.20 28.00 111.00 $ $ $ $ Pathbreaker 51.00 Given 13.00 Given 20.00 Calculated below 84.00 Working: Overhead cost 1.40 x 20 1.00 x 20 Predetermined overhead rate x direct labor hour per unit 2 Schedule Showing computation of activity based overhead rates (per cost driver). Activity based overhead rate = Estimated Overhead / Expected use of cost driver (A) (B) Expected use of cost driver (A)/(B) Activity based overhead rate Activity cost pool Estimated Overhead Supporting direct labor Batch Setup Product sustaining General factory 797,500 680,000 650,000 72,500 2,200,000 110000 DLH 400 setups 2 products 10000 MH 7.25 Per DLH 1,700 Per setup 325,000 Per product 7.25 Per MH 3 Schedule showing assigning of each product based on the use of cost driver Cost Assigned = Expected Cost driver x Activity based overhead rate Activity cost pool Supporting direct labor Batch Setup Product sustaining General factory Xactive Activity based Expected Cost driver overhead rate 35000 $ 7.25 250 $ 1,700 1 $ 325,000 2500 $ 7.25 Cost Assigned $ 253,750 $ 425,000 $ 325,000 $ 18,125 Expected Cost driver 75000 $ 1500 $ 1 $ 7500 $ Pathbreaker Activity based overhead rate 7.25 1,700 325,000 7.25 Cost Assigned $ 543,750 $ 255,000 $ 325,000 $ 54,375 $ $ Total Cost Assigned (a) Units Produced (b) Overhead Cost Per Unit (a)/(b) 1,021,875 25000 40.88 1,178, 125 75000 15.71 $ $ $ Total cost per unit under ABC method: Direct Material Direct Labor Overhead cost Total Unit Cost $ $ $ $ Xactive 64.80 $ 18.20 $ 40.88 $ 123.88 $ Pathbreaker 51.00 13.00 15.71