Question

Harrison Company makes two products and uses a conventional costing system in which a single plantwide, predetermined overhead rate is computed based on direct labour-hours. Data for the two products for the upcoming year follow: Rascon 5 29.60 $ 14.70 70 29,000 Parcel $ 23.00 $ 4.20 Direct materials cost per unit Direct labour cost per unit Direct labour-hours per unit Number of units produced 40 120.000 These products are customized to some degree for specific customers. Required: 1. The company's manufacturing overhead costs for the year are expected to be $861,000. Using the company's traditional costing system, compute the unit product costs for the two products. (Round intermediate calculations and round your final answers to 2 decimal places. Rascon Parcel Unit product cost ® ® 2. Management is considering an ABC system in which half of the overhead would continue to be allocated on the basis of direct labour-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year. Engineering design time (in hours) Rascon 5,400 Parcel 2,700 Total 8,100 Compute the unit product costs for the two products using the proposed ABC system. (Round intermediate calculations and round your final answers to 2 decimal places.) Rascon Parcel Unit product cost

Answer 1

Harrison Company:

(1): Manufacturing overhead costs = $861,000. No. of direct labor hours = (29000*0.70) + (120000*0.40) = 68,300 labor hours

Overhead = $861,000 and so pre-determined overhead rate = 861,000/68,300 = $12.61 per hour.

Thus unit cost for Rascon = 29.60+14.70+(0.70*12.61) = $53.13

Unit cost for Parcel = 23+4.2+(0.40*12.61) = $32.24

	Rascon	Parcel
Unit product cost	53.13	32.24

(2): Half of the overhead = 861,000/2 = $430,500

Total hours = 68,300 (as computed in 1 above). So predetermined overhead rate = 430,500/68,300 = $6.30 per hours.

The other half would be allocated on the basis of engineering design time and so the rate = 430,500/8,100 hours = $53.15 per hour.

Now unit product cost for Rascon = 29.60+14.70+(0.70*6.3) + (5400*53.15/29000) = $58.61

For Parcel = 23+4.2+(0.4*6.3)+(2700*53.15/120000) = $30.92

	Rascon	Parcel
Unit product cost	58.61	30.92