Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company

Answer 1

Answer:1

In traditional method manufacturing overhead is recovered on the basis of direct labor hour. The recovery rate in this problem has been calculated below-

1. Manufacturing overhead recovery rate-

$=\frac{\textup{Estimated total manufacturing overhead}}{\textup{Estimated total direct labor hours}}=\frac{\$ 397,000}{50,000}=\$ 7.94$

2.Statement showing unit product cost under standard overhead recovery rate system

	Delux	Standard
1. Direct material	$67	$55
2. Direct labor	$25	$20.40
3. Manufacturing overhead	$7.94x0.7=$5.56	$7.9x1.4=$11.12
4. Cost per unit (1+2+3)	$97.56	$86.52

Result:

Unit product cost-

Standard - $97.56

Delux - $86.52

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Answer of part 2:

In activity based costing, different activities required in doing the job are identified. Then manufacturing overhead needed for each such activities are ascertained. Finally such activity wise overheads are allocated among the two products on the basis of quantity of activities performed for them. It is a more scientific and accurate way of allocating ovehead. Thus unit cost becomes more accurate.

Statement showing manufacturing overhead as per activities

Activities	Standard	Delux
1. Supporting Direct labors [$200,000/50,000=$4]	10,000x$4=$40,000	40,000x4=$160,000
2. Batch Set up [$129,000/300=$430]	200x$430=$86,000	100x$430=$43,000
3. Safety Testing [$68,000/100=$680]	30x$680=$20,400	70x$680=$47,600
4. Total manufacturing overhead (1+2+3)	$146,400	$250,600
5. Units manufactured	10,000	50,000
6. Manufacturing overhead per unit under activity based costing system (4/5)	$14.64	$5.01

Note: In the above table, bracketed calculation of first column indicates overhead cost per unit of activity. This activity rate has been multiplied with the quantity of activity units consumed to get the allocation figure. These calculations are shown incolumn 2 and column

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Statement showing unit cost under activity based costing system

	Standard	Delux
1. Direct material cost	$67	$55
2. Direct labor cost	$25	$20.40
3. Manufacturing overhead	$14.64	$5.01
4. Cost per unit (1+2+3)	$106.64	$80.41

Result: Unit product cost under activity based system:

Standard - $106.64

Delux - $80.41