Question

Consider the following data for two products of Gitano Manufacturing. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and "OH rate and cost per unit" answers to 2 decimal places) Number of units produced Direct labor cost (@ $26 per DLH) Direct materials cost Product A 13,000 units 0.18 DLH per unit $ 2.40 per unit Product B 1,200 units 0.26 DLH per unit $ 2.70 per unit Activity Machine setup Materials handling Quality control inspections Overhead costs $122,460 57,000 59,220 $ 238, 680 Required Answer is not complete. 1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line. Overhead costs $ 238. 680 0 per direct labor hour Direct labor hours Overhead Assigned Activity Plantwide OH Total Overhead Driver OH Cost rate Cost Units Produced per unit Product A 2,340S 98.00 Ⓡ$ 229,320 Product B 312 $ 98.00 $ 30,576

Answer 1

Answer 1.
Predetermined Overhead Rate = $238,680 (Total Overhead) / 2,652 DLH
Predetermined Overhead Rate = $90 per DLH
Computation of Direct Labor Hours
Product A - 13000 Units X 0.18 DLH	2340
Product B - 12,00 Units X 0.26 DLH	312
Total Direct Labor Hours	2652

Overhead Assigned	Activity Driver(a)	Plantwide OH Rate (b)	Total Overhead Cost(C=Axb)	Units Produced (d)	OH Cost per Unit (c/d)
Product A	2340	$90.00	$210,600.00	13000	$16.20
Product B	312	$90.00	$28,080.00	1200	$23.40

Calculation of Total Manufacturing Cost
Under Traditional Costing
	Product A	Product B
Direct Material	$2.40	$2.70
Direct Labor (26X0.18) ((26*0.26)	$4.68	$6.76
Applied Overhead	$16.20	$23.40
Product Cost per Unit	$23.28	$32.86

Answer 2.
	Product A	Product B
Market Price per Unit	$28.40	$61.00
Product Cost Per Unit	$23.28	$32.86
Profit (Loss) per Unit	$5.12	$28.14

Answer 3.
ABC Costing
Activity	Overhead (A)	Cost Driver Quantity (B)		Allocation Rate (A/B)
Indirect Costs
Machine Setups	$122,460.00	28	setups	$4,373.57	per setups
Materials Handling	$57,000.00	216400	parts	$0.26	per parts
Quality Control Inspections	$59,220.00	282	hours	$210.00	per hour
Total	$238,680.00

Assigning Overhead Cost to Product Model
Using ABC Method
	Activity Based Overhead Rate		Product A			Product B
	(a)		Cost Driver Incurred (b)		OH Allocated (aXb)	Cost Driver Incurred ( C)		OH Allocated (aXc)
Machine Setups	$4,373.57	per setups	8	setups	$34,988.57	20	setups	$87,471.43
Materials Handling	$0.26	per parts	208000	parts	$54,787.43	8400	parts	$2,212.57
Quality Control Inspections	$210.00	per hour	52	hours	$10,920.00	230	hours	$48,300.00
Total Overhead (d)					$100,696.00			$137,984.00
No. Of Units( e)					13000			1200
Overhead per Unit (d/e)					$7.75			$114.99

Calculation of Unit Product Cost
Under ABC Costing
	Product A	Product B
Direct Material	$2.40	$2.70
Direct Labor (26X0.18) ((26*0.26)	$4.68	$6.76
Applied Overhead	$7.75	$114.99
Product Cost per Unit	$14.83	$124.45

Answer 4.
	Product A	Product B
Market Price per Unit	$28.40	$61.00
Product Cost Per Unit	$14.83	$124.45
Profit (Loss) per Unit	$13.57	-$63.45