Question

Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.

Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $5,416,300 in manufacturing overhead cost and produce 19,000 units of the deluxe model and 116,000 units of the regular model. The deluxe model requires 1.0 hours of direct labor time per unit, and the regular model requires 0.5 hour. Material and labor costs per unit are as follows:

	Model
	Deluxe			Regular
Direct materials	$	144		$	119
Direct labor	$	11		$	5

Required:

1-a. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate.

1-b. Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of each model.

2. Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity-based system would have the following four activity cost pools:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Purchasing	Purchase orders issued	$	297,000
Processing	Machine-hours		3,220,000
Scrap/rework	Scrap/rework orders issued		699,300
Shipping	Number of shipments		1,200,000
		$	5,416,300

	Expected Activity
Activity Measure	Deluxe	Regular	Total
Purchase orders issued	450	900	1,350
Machine-hours	18,400	27,600	46,000
Scrap/rework orders issued	525	420	945
Number of shipments	6,000	9,000	15,000

Determine the predetermined overhead rate for each of the four activity cost pools.

3. Using the predetermined overhead rates you computed in part (2), do the following:

a. Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each model.

b. Compute the unit product cost of each model (including direct materials, direct labor, and manufacturing overhead).

Complete this question by entering your answers in the tabs below.

• Req 1A
• Req 1B
• Req 2
• Req 3A
• Req 3B

Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate. (Round your answer to 2 decimal places.)

	Predetermined overhead rate $.    per DLH

Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of each model. (Round your intermediate calculations and final answers to 2 decimal places.)

	Model Deluxe Regular Unit product cost $ $

Determine the predetermined overhead rate for each of the four activity cost pools.

	Activity Cost Pool Predetermined Overhead Rate Purchasing per purchase order Processing per MH Scrap/rework per order Shipping per shipment

Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each model. (Round your intermediate calculations and "Overhead cost per unit" answers to 2 decimal places.)

	Model Activity Cost Pool Deluxe Regular Total overhead cost Overhead cost per unit

ompute the unit product cost of each model (including direct materials, direct labor, and manufacturing overhead). (Round your intermediate calculations and final answers to 2 decimal places.)

	Model Deluxe Regular Direct materials Direct labor Manufacturing overhead Total unit product cost $0.00 $0.00

Answer 1

1-a Predetermined rate Total Manufacturing Overheads Direct Labor hours $5,416,300 77,000 $70.34 Per Direct Labor hour Working note: Total Deluxe 1.00 Direct labor hours Labor hour per unit Output Total labor hours Regular 0.50 116,000 58,000 19,000 19,000 A 77,000 Manufacturing Overhead allocated Overhead per unit $1,336,490 $4,079,810 B $70.34 $35.17 B/A 1-b Unit Product cost - As per traditional method Deluxe Direct Material $144.00 Direct Labor $11.00 Manufacturing overhead $70.34 Unit product cost $225.34 Regular $119.00 $5.00 $35.17 $159.17 Activity Cost pool Purchasing Processing Scrap/Re-work Shipping Total Overheads Cost Pool $297,000 $3,220,000 $699,300 $1,200,000 $5,416,300 Total Activities 1,350 46,000 945 15,000 Activity Rate $220 per purchase order issued $70 per machine hour $740 per scrap/re-work order issued $80 per shipment 3-a Expected use of cost drivers $220 Purchasing Processing Scrap/Re-work Shipping Total Cost assigned Total output Manufacturing cost per unit 4501 18,400 525 6,000 Deluxe Activity Based Cost Overhead Assigned rates $220 $99,000 $70 $1,288,000 $740 $388,500 $80 $480,000 $2,255,500 19,000 $118.71 Regular Expected Activity- use Based Cost of cost Overhea Assigned drivers d rates 900 $198,000 27,600 $70 $1,932,000 420 $310,800 9,000 $80 $720,000 $3,160,800 116,000 $27.25 $740 3-b Unit product cost-As per ABC method Direct Material Direct Labor Manufacturing overhead Unit product cost Deluxe $144.00 $11.00 $118.71 $273.71 HO SEE Regular $119.00 $5.00 $27.25 $151.25