Question

part 1

Exercise 4-4 Contrast ABC and Conventional Product Costs (L04-4) Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 33,000 units next year and Product Lis expected to sell 6,600 units. A unit of either product requires 0.6 direct labor-hours. The company's total manufacturing overhead for the year is expected to be $2,019,600. Required: 1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? 1-b. Compute the total amount of overhead cost that would be applied to each product. 2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $1,009,800 assigned to product H and $1,009,800 assigned to Product L. if this suggestion is followed, how much overhead cost per unit would be assigned to each product? Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Req 2 The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? (Round your answers to 2 decimal places.) Product Product L Overhead cost per unit

part 2

part 3

Answer 1

1 A. Computation of allocation of overhead cost per unit that would be applied to each product:

Particulars Product H Product L Overhead Cost Allocated A No of Units sold B Overhead Cost per unit C = A/B $1,683,000 $336,600 33,000 6,600 $51.00 $51.00

1 B. Computation of total Overhead Cost that would be applied to each product:

First of all we will need to calculate the labour hours used for each product, which will be done as follows:

Particulars Product Product L 6,600 No of Units sold A Labour Hours per unit B Total Labour Hours used C=A*B 33,000 0.6 19,800 0.6 3,960

Total Labour Hours worked = 19,800 + 3,960 = 23,760 Hours

Therefore, cost allocated to Product H = Total Overheads * Labour Hours used by Product H/Total labor Hours Used

= $2,019,600 *19,800/23,760 = $1,683,000

Therefore, cost allocated to Product L = Total Overheads * Labour Hours used by Product L /Total labor Hours Used

= $2,019,600 *3,960/23,760 = $336,600

2. Computation of Overhead Cost per unit on the basis of ABC:

Particulars Product H Product L Overhead Cost Allocated as per ABC A No of Units sold Overhead Cost per unit C = A/B B $1,009,800 $1,009,800 33,000 6,600 $30.60 $153.00