Question

Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $192,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below: Estimated volume Direct labor-hours per unit Direct materials cost per unit Direct labor cost per unit Product c 4,550 units 2.70 hours $19.10 $27.00 Product D 3,750 units 2.80 hours $32.70 $28.00 Required: a-1. Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLH a-2. Determine the unit product cost of each product for the current year. (Round your intermediate calculations and final answers to 2 decimal places.) Product Product D Unit product cost b. The company is considering using an activity based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: Estimated Expected Activity Overhead Activity Cost Pools Cost Product Product Total Machine setup $ 13,690 260 270 530 Purchase orders 79,740 1,120 1,460 2,580 Order size 99.480 12,285 10,500 22,785 Total $192,910 Determine the unit product cost of each product for the current period using the activity-based costing approach (Round your Intermediate calculations and final answers to 2 decimal places.)

Answer 1

a-1

Statement showing overhead rate per direct labour hour

Particulars	product C	Product D	Total
Units	4550	3750
Direct Labour hours per unit	2.7 hours	2.8 hours
Total direct labour hours	12285	10500	22785

Manufacturing overhead absorption rate = Total manufacturing overhead / total direct labour hours

= 192910 / 22785

= $8.46 per direct labour hour

a-2 Statement showing unit cost of a product

Particulars	product C	Product D
Direct material	19.10	32.70
Direct labour	27	28
manufacturing overhead	8.46* 2.7=22.842	8.46 *2.8=23.68
Total unit cost	68.94	84.38

b-1

Statement showing overhead rate under Activity Based Costing

Particulars	product C	Product D	Total
Machine set ups	260/530*13690=6715.84	270/530*13690=6974.15	13690
purchase orders	1120/2580*79740=34615.81	1460/2580*79740= 45124.11	79740
order size	12285/22785*99480=53636.68	10500/22785*99480 = 45843.31	99480
Total	94968.33	97941.57	192910

b-2

Statement showing unit cost of a product

Particulars	product C	Product D
Direct material	19.10	32.70
Direct labour	27	28
manufacturing overhead	94968.33/4550=20.87	97941.57/3750=
Total unit cost	66.97	86.82