Question

Howden, Inc., manufactures and sells two products Product P5 and Product S9. Data concerning the expected production of each product and the expected total direct labor hours (DLHS) required to produce that output appear below. Expected Direct Labor Total Direct Production Hours Per Unit Labor Hours Product P5 300 70 2.100 Product S9 900 40 3.600 Total direct labor-hours 5,700 The direct labor rate is $25.70 per DLH. The direct materials cost per unit for each product is given below. Direct Materials Cost per Unit Product P5 $248.50 Product S9 $294.80 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity Estimated Expected Activity Overhead Activity Cost Pools Activity Measures Cost Product PS Product S9 Total Labor related DLHS $ 247152 2,100 3,600 5.700 Machine setups Setups 28,990 600 700 1,300 Order size MHS 519,241 4,900 5.200 10,100 $ 795,383 Which of the following statements concerning the unit product cost of Product S9 is true? (Round your intermediate calculations to 2 decimal places.) Select one O A. The unit product cost of Product S9 under traditional costing is greater than its unit product cost under activity-based costing by $700.00 O B. The unit product cost of Product S9 under traditional costing is less than its unit product cost under activity-based costing by S700.00 O C. The unit product cost of Product S9 under traditional costing is greater than its unit product cost under activity-based costing by S70.34 O D. The unit product cost of Product S9 under traditional costing is less than its unit product cost under activity-based costing by S70.34

Answer 1

Product S9 Unit cost under traditional method
Total direct Labour hours = 3600 hours
Direct Labour rate = $25.70 per hour
Total Direct labour cost = 3600*25.70
= $92520
Direct Labour per unit = $92520/900 units
= $102.8 per unit
Total overheads = $795383
Overhead allocated to Product S9 based on Direct labour hours = $795383*3600/5700
	= $502347.16
Overheads per unit = $502347.16/900 units
= $558.16
Therefore, total porduct cost under traditional method = $294.80+$558.16+$102.80
	= $955.76 per unit
Product S9 unit cost under activity costing method
Labour related overhead allocated to Product S9 = $247152*3600/5700
	= $156096
Machine setups overhead allocated to Product S9 = $28990 *700/1300
	= $15610
Order overhead allocated to Product S9 = $519241*5200/10100
	= $267332
Total overhead allocated to Product S9 = $156096+$15610+$267332
	= $439038
Overhead per unit of Product S9 = $439038/900 units
= $487.82 per unit
Total unit cost for Product S9 = $487.82+$294.80+$102.8
= $885.42
Therefore, difference in unit product cost = $955.76-$885.42
	= $70.34 per unit
Therefore, the unit product cost of Product S9 under traditional costing is greater than its units product cost under activity
based costing by $70.34
Option C is the correct answer.