Question

All on problem, just two parts.

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production Deluxe $ 50.00 $ 8.00 0.70 DLHS 10,000 units Standard $ 38.80 $ 6.80 1.40 DLHS 50,000 units The company has a traditional 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 $514,000 77,000 DLHS Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system 2. The company is considering replacing its traditional costing system with an activity based absorption costing system that would have the following three activity cost pools: Expected Activity Estimated Overhead Activity Cost Pools (and Activity Measures) Cost Deluxe Standard Total Supporting direct labor (direct labor-hours) $385,000 7,000 70,000 77,000 Batch setups (setups) 78,000 200 100 300 51,000 30 70 100 Safety testing (tests)

Answer 1

1) Calculate unit product cost under traditional costing

Overhead rate = 514000/77000 = 6.68

	Deluxe	Standard
Direct material	50	38
Direct labor	8	6.8
Overhead	6.68*.70 = 4.68	9.35
Unit cost	62.68	54.15

2) Calculate unit product cost under ABC

	Deluxe	Standard
Supporting direct labor	385000/77000*7000 = 35000	350000
Batch setup	78000/300*200 = 52000	26000
Safety testing	51000/100*30 = 15300	35700
Total overhead	102300	411700
Units	10000	50000
Overhead cost per unit	10.23	8.23
Direct material	50	38
Direct labor	8	6.8
Unit cost	68.23	53.0333