Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below:

	Deluxe			Standard
Direct materials per unit	$	63.00		$	51.00
Direct labor per unit	$	21.00		$	17.20
Direct labor-hours per unit		0.70	DLHs		1.40	DLHs
Estimated annual production		10,000	units		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	$	643,000
Estimated total direct labor-hours		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	Estimated Overhead Cost		Deluxe	Standard	Total
Supporting direct labor (direct labor-hours)	$	462,000	7,000	70,000	77,000
Batch setups (setups)		117,000	200	100	300
Safety testing (tests)		64,000	30	70	100
Total manufacturing overhead cost	$	643,000

Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

Answer 1