Stillicum Corporation makes ultra light-weight backpacking
tents. Data concerning the company’s two product lines appear
below:
Deluxe | Standard | |||||
Direct materials per unit | $ | 52.00 | $ | 40.00 | ||
Direct labor per unit | $ | 10.00 | $ | 8.40 | ||
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 | $ | 522,000 | |
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) | $ | 385,000 | 7,000 | 70,000 | 77,000 |
Batch setups (setups) | 84,000 | 200 | 100 | 300 | |
Safety testing (tests) | 53,000 | 30 | 70 | 100 | |
Total manufacturing overhead cost | $ | 522,000 | |||
Determine the unit product costs of the Deluxe and Standard
products under the activity-based absorption costing
system.
Req 1: Pre-determined overhead rate based on labour hours | ||||||
Pre-determined rate= estimated overheads / Estimated labouor hours | ||||||
($522000 /77000 dlh) = $6.78 per DLH | ||||||
STATEMENT SHOWING UNIT PRODUCT COST | ||||||
DELUXE | STANDARD | |||||
Direct Material per unit | 52 | 40 | ||||
Direct labour per unit | 10 | 8.4 | ||||
Overheads per unit | ||||||
Deluxe (0.70 DLH @$6.78) | 4.75 | |||||
Standard (1.40 DLH @$6.78) | 9.5 | |||||
Unit product cost | 66.75 | 57.9 | ||||
Req 2: | ||||||
Activity rate: | ||||||
STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL | ||||||
Activity | Total | Expected | Activity | |||
ACTIVITY COST POOL | Measures | Overheads | Activity | Rate | ||
Supportin direct labour | DLH | 385,000 | 77,000 | $5 per DLH | ||
batch setup | Setups | 84,000 | 300 | $280 per Setup | ||
Safety testing | Tests | 53,000 | 100 | $530 per test | ||
Activity cost assigned to products | ||||||
DELUXE | STANDARD | |||||
Supporting direct labour (@$5 per DLH) | 35000 | 350000 | ||||
batch Setup(@$280 per setup) | 56000 | 28000 | ||||
Safety Testing (@$530 per test) | 15900 | 37100 | ||||
Total Activity cost | 106900 | 415100 | ||||
Number of units | 10000 | 50000 | ||||
Activity cost per unit | 10.69 | 8.302 | ||||
STATEMENT SHOWING UNIT PRODUCT COST | ||||||
DELUXE | STANDARD | |||||
Direct Material per unit | 52 | 40 | ||||
Direct labour per unit | 10 | 8.4 | ||||
Activity cost per unit | 10.69 | 8.302 | ||||
Unit product cost | 72.69 | 56.702 |
Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below:...
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