Question

CH Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales Xactive $ 65.20 $ 18.60 1.4 DLHS 29,000 units Pathbreaker $ 51.40 $ 13.40 1 DLHS 79,000 units The company has a conventional 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 Estimated total direct labor-hours $2,439,840 119,600 DLHS Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours, 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) General factory (machine-hours) Total manufacturing overhead cost Estimated Overhead Cost $ 891,020 836,000 632, 360 80,460 $2,439,840 Expected Activity Xactive Pathbreaker Total 40,600 79,000 119,600 270 170 440 1 1 2. 2,900 7,900 10,800

Answer 1

1.a	Predetermined OH rate =Estimated manufacturing overhead / Estimated direct labor hours
	Predetermined OH rate =$2,439,840 / $119,600 =$20.40 per DLH
1.b		Xactive	Pathbreaker
	Direct material per unit	$65.20	$51.40
	Direct Labor cost per unit	$18.60	$13.40
	Manufacturing OH per unit[($20.4*1.4DLH),($20.4*1.0DLH)]	$28.56	$20.40
	Unit Product cost	$112.36	$85.20
2	Computation of Activity Rate
	Activities	Costs	Cost drivers	Cost driver total	Overhead rate(Costs/Cost driver total)
	Supporting Direct labor	$891,020	Direct labor hours	119,600	$7.45	per DLH
	Batch setups	$836,000	No. of setups	440	$1,900.00	per setup
	Product sustaining	$632,360	No. of products	2	$316,180.00	per product
	General Factory	$80,460	Machine hours	10,800	$7.45	per machine hours
			Xactive	Pathbreaker
		ABC rate	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
	Supporting Direct labor	$                                    7.45	40600	$                                     302,470	79000	$                                 588,550
	Batch setups	$                             1,900.00	270	$                                     513,000	170	$                                 323,000
	Product sustaining	$                         316,180.00	1	$                                     316,180	1	$                                 316,180
	General Factory	$                                    7.45	2900	$                                       21,605	7900	$                                   58,855
	Total Assigned manufacturing Cost			$                                  1,153,255		$                              1,286,585
	No. of units			29000		79000
	Manufacturing Cost per unit			$                                         39.77		$                                     16.29
3		Xactive	Pathbreaker
	Direct material per unit	$65.20	$51.40
	Direct Labor cost per unit	$18.60	$13.40
	Manufacturing OH per unit	$39.77	$16.29
	Unit Product Cost	$123.57	$81.09