Question

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 $ 64.80 $ 18.20 1.4 DLHS 25, eee units Pathbreaker $ 51.ee $ 13.00 1.2 DLHS 75, eee 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 $2,200, eee 110,000 DLHS

Answer 1

SOLUTION

1a. Predetremined overhead rate = Total estimated overhead costs / Total estimated direct labor hours

= $2,200,000 / 110,000 direct labor hours

= $20 per direct labor hour.

1b.

Particulars	Xactive	Pathbreaker
Direct materials per unit	64.80	51.00
Direct labor per unit	18.20	13.00
Manufacturing overhead cost per unit	28.00	20.00
Unit cost per unit	111.00	84.00

Manufacturing overhead cost per unit for Xactive =  Predetremined overhead rate * Actual direct labor hours

= $20 * 1.4 = $28

Manufacturing overhead cost per unit for Pathbreaker =  Predetremined overhead rate * Actual direct labor hours

= $20 * 1.0 = $20

2.

Activity cost pool	Estimated activity cost (A) ($)	Volume of the cost driver (B)	Activity based overhead rates (A/B)
Supporting direct labor	797,500	110,000 DLH	7.25 per DLH
Batch setups	680,000	400 Setups	$1,700 per setup
Product sustaining	650,000	2 Products	$325,000 per product
General factory	72,500	10,000 machine hours	$7.25 per machine hour

3. Computation of manufacturing overhead for Xactive-

Activity cost pool	Activity based overhead rates (A)	Actual Volume of the allocation base (B)	Manufacturing overhead (A*B)
Supporting direct labor	7.25 per DLH	35,000 DLH	253,750
Batch setups	$1,700 per setup	250 Setups	425,000
Product sustaining	$325,000 per product	1 Product	325,000
General factory	$7.25 per machine hour	2,500 machine hours	18,125
Total manufacturing overhead cost alloacted (X)			$1,021,875
Total number of units (Y)			25,000
Manufacturing overhead per unit (X/Y)			$40.88

Computation of manufacturing overhead for Pathbreaker-

Activity cost pool	Activity based overhead rates (A)	Actual Volume of the allocation base (B)	Manufacturing overhead (A*B)
Supporting direct labor	7.25 per DLH	75,000 DLH	543,750
Batch setups	$1,700 per setup	150 Setups	255,000
Product sustaining	$325,000 per product	1 Product	325,000
General factory	$7.25 per machine hour	7,500 machine hours	54,375
Total manufacturing overhead cost alloacted (X)			1,178,125
Total number of units (Y)			75,000
Manufacturing overhead per unit (X/Y)			$15.71

Computation of unit product cost-

Particulars	Xactive	Pathbreaker
Direct materials per unit	64.80	51.00
Direct labor per unit	18.20	13.00
Manufacturing overhead cost per unit	40.88	15.71
Unit cost per unit	123.88	79.71