Question

Pro blem 2 (Supplemental Problem #2)-Activity-based costing versus traditional costing sunglasses. The company uses a normal cos based on direct labor hours Lovelace Company produces only two products: reading glasses and sung system and overhead costs are currently allocated using a plant-wide overhead rate products. Itants have recommended that the company use activity-based costing to charge overhead to he company expects to produce 4,000 reading glasses and 8,000 sunglasses this year. Each pair of reading glasses requires two direct labor hours to produce and each pair of sunglasses requires one-half hour to produce. The direct material and direct labor costs per unit are as follows: Direct Material (per unit) Direct Labor (per uni) $ Estimated total factory overhead data for the year is as follows: Reading Glasses Sunglasses 30.00 S 16.00 S 17.00 4.00 Activity Total Production setups Material handling 20 setups 1,000 bs. 4,000 bs. 5,000 bs. d shpping 120,000 4,000 boxes 2,000 boxes 6,000 boxes 80,000 70,000 5 setups 15 setups Total factory overhead S 270,000 Required (Traditional Method) 1. Using the traditional cost assignment method, calculate the plant-wide overhead rate: Plan -wide overhead rate: s 220 perdiret labor hour Rcaling glass s 4per unit Sunglases 32.2S Reaudin glaseSo per unit Sungelasesso.so per direct labor hour 2. Under the traditional cost assignment method using the plant-wide overhead rate, how much is the overhead cost per unit for the per unit Reading glasses: S 3. Using the traditional cost assignment method how much is the product cost per unit for the: per unit Problem 2 is continued on the next page** ursday. September 27

Answer 1

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Answers are highlighted in yellow: Solution: Tradtional: 1) Plantwide overhead rate = (270000) / [(4000*2)+(8000*0.5) $ 22.50 2) (22.50*8000)/4000- (22.50*4000)/8000 = $ 45.00 $ 11.25 3) Product cost per unit Reading Sunglasses (30+16+45) (17+4+11.25) $91.00 $ 32.25 4) ABC: Set up Material handling Pack & Ship (80000/20) (70000/5000) (120000/6000) $4,000.00 14.00 $ 20.00 b) 5) Overhead cost per unit Reading 5 4000)+(1000 14)+(4000*20)1/4000 28.50 Sunglasses (15*4000)+(4000*14)+ (2000* 20)1/8000 19.50 6) Product cost per unit Reading Sunglasses (30+16+28.50) (17+4+19.50) $ 74.50 $40.50