Question

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below: Xactive Pathbreaker Direct materials per unit $ 64.90 $ 51.10 Direct labor cost per unit $ 18.30 $ 13.10 Direct labor-hours per unit 1.4 DLHS 1 DLHS Estimated annual production and sales 26,000 units 76,000 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: $2,259,240 Estimated total manufacturing overhead Estimated total direct labor-hours 112,400 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: Expected Activity Estimated Overhead Cost 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 $ 820,520 717,500 646,760 Xactive Pathbreaker Total 36,400 76,000 112,400 255 155 410 1 1 2 74,460 2,600 7,600 10,200 $2,259,240 Determine the activity rate for each of the four activity cost pools. 3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

Answer 1

Ans.

1a)

Predetermined Overhead Rate = Estimated Overhead / Number of Estimated Direct Labor Hours

Predetermined Overhead Rate = $ 2,259,240 / 112,400 DLHs = $ 20.10 per DLH

1b)

Calculation of Unit Product Cost

	Xactive	Pathbreaker
Direct Material	$    64.90	$           51.10
Direct Labor	$    18.30	$           13.10
Overheads ( $ 20.1 * DLH per unit)	$    28.14	$           20.10
Unit Product Cost	$ 111.34	$           84.30

	Xactive	Pathbreaker
Unit Product Cost	$              111.34	$           84.30

2)

Actiivity Cost Pool	Overhead	Activity	Activity Rate
Supporting Direct Labor	$      820,520.00	112400	$               7.30	per DLH
Batch Setups	$      717,500.00	410	$      1,750.00	Per Setup
Product Sustaining	$      646,760.00	2	$ 323,380.00	Per Product
General Factory	$        74,460.00	10200	$               7.30	Per MHR
	$ 2,259,240.00

Actiivity Cost Pool	Activity Rate
Supporting Direct Labor	$                   7.30	per DLH
Batch Setups	$          1,750.00	Per Setup
Product Sustaining	$      323,380.00	Per Product
General Factory	$                   7.30	Per MHR

3)

			Xactive		Pathbreaker
Actiivity Cost Pool	Activity Rate		Activity	Overheads Allocated	Activity	Overheads Allocated
Supporting Direct Labor	$                   7.30	per DLH	36,400	$     265,720.00	76,000	$      554,800.00
Batch Setups	$          1,750.00	Per Setup	255	$     446,250.00	155	$      271,250.00
Product Sustaining	$      323,380.00	Per Product	1	$     323,380.00	1	$      323,380.00
General Factory	$                   7.30	Per MHR	2,600	$       18,980.00	7,600	$        55,480.00
Total				$ 1,054,330.00		$ 1,204,910.00
Number of Units				26,000		76,000
Cost Per Unit				$               40.55		$                15.85

Calculation of Unit Product Cost

	Xactive	Pathbreaker
Direct Material	$                64.90	$           51.10
Direct Labor	$                18.30	$           13.10
Overheads	$                40.55	$           15.85
Unit Product Cost	$              123.75	$           80.05

	Xactive	Pathbreaker
Unit Product Cost	$              123.75	$           80.05