Question

Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $ 183,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct laborhours. Data concerning the current period's operations appear below:

	Product C	Product D
Estimated volume	4,100 units	3,300 units
Direct labor-hours per unit	1.80 hours	1.90 hours
Direct materials cost per unit	$14.60	$27.30
Direct labor cost per unit	$18.00	$19.00

Required:

a-1. Compute the predetermined overhead rate under the current method.

a-2. Determine the unit product cost of each product for the current year. 

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:

Determine the unit product cost of each product for the current period using the activity-based costing approach,

Answer 1

a-1) $13.47 per hour

predetermined overhead rate=budgeted overhead/budgeted activity level

budgeted overhead=$183910

budgeted activity level is the total direct labour hours taken for both product

total direct labor hours=(4100*1.8)+(3300*1.9)=13650 hours

predetermined overhead rate=$183910/13650=$13.47 per hour

a-2)

	product c	product d
unit product cost	$56.85	$71.89

unit product cost=direct material cost per unit+direct labour cost per unit+manufacturing overhead per unit

for product c

unit cost=$14.6+$18+$24.25=$56.85

manufacturing overhead per unit=direct labour hours per unit*predetermined overhead rate

manufacturing overhead per unit=1.8*$13.47=$24.25

for product d

unit cost=$27.30+$19+$25.59

manufacturing overhead per unit=direct labour hours per unit*predetermined overhead rate

manufacturing overhead per unit=1.9*$13.47=$25.59

b)

	product c	product d
unit product cost	$54.46	$74.83

machine setups

cost per setup=$12790/350=$36.54 per setup

for product c ,170 setups

total setup cost for product c=170*$36.54=$6211.8

setup cost per unit=$6211.8/4100=$1.51 per unit

for product d, 180 units

total setup cost for product d=180*$36.54=$6577.2

setup cost per unit=$6577.2/3300=$1.99 per unit

purchase orders

cost per purchase order=$77040/2220=$34.70

for product c,940 purchase orders

total cost of purchase orders for c=$34.70*940=$32618

cost of purchase order per unit=$32618/4100=$7.95 per unit

for product d,1280 purchase orders

total cost of purchase orders for d=$34.70*1280=$44416

cost of purchase order per unit=$44416/3300=$13.45 per unit

order size

cost per order size=$94080/13650=$6.89 per order size

for product c, 7380 order size

total cost of order size for c=$6.89*7380=$50848.2

order size per unit=$50848.2/4100=$12.40 per unit

for product d, 6270 order size

total cost of order size for d=$6.89*6270=$43200.3

order size per unit=$43200.3/3300=$13.09 per unit

unit cost for

product c=$14.60+$18+$1.51+$7.95+$12.40=$54.46

product d=$27.30+$19+$1.99+$13.45+$13.09=$74.83