Question

A company makes two products - Widgets and Spindles. Data regarding the two products follow:

	Direct Labor-Hours per Unit	Annual Production
Widgets	0.80	22,000 units
Spindles	0.40	58,000 units

Additional information about the company follows:

a. Widgets require $23 in direct materials per unit, and Spindles require $13.

b. The direct labor wage rate is $20 per hour.

c. Widgets are more complex to manufacture than Spindles and they require special processing.

d. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated		Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost		Widgets	Spindles	Total
Machine setups (number of setups)	$	14,400	80	64	144
Special processing (machine-hours)	$	135,000	4,500	0	4,500
General factory (Direct labor-hours)	$	367,200	17,600	23,200	40,800

Required:

1. Compute the activity rate for each activity cost pool.

2. Compute the unit product cost for Widgets and Spindles using activity-based absorption costing.

Answer 1

80 Machine Setup Special Processing General Factory Activity Cost Pool Machin Setup (14400/144) Special Processing (135000/4500) General facotry (367200/40800) Overhead Cost Widgets Spindles total 14400 1 64 144 135000 4500 0 4500 367200 17600 23200 40800 Activity Rate 100 Per Setup 30 Per MH 9 Per MH Total Ovehead Cost Assigned Widgets Spindles Machine Setup (Rate * setups) 80001 6400 Special Processing (Rate* Machine Hours) 135000 General Factory 158400 208800 Total Oveheads 301400 215200 Ovehead cost per unit (Ov/ Units) 13.70 3.71 Determine the Unit Product Cost Widgets Spindles Direct Material 23.00 13.00 The Direct labor (20*0.80, 20*0.40) 16.00 8.00 Overhead cost 13.701 3.71 Unit Cost 52.70 24.71