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	$	64.10		$	50.30
Direct labor cost per unit	$	17.50		$	12.30
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		18,000	units		68,000	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:

Estimated total manufacturing overhead	$1,798,760
Estimated total direct labor-hours	93,200	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:

	Estimated Overhead Cost			Expected Activity
Activity Cost Pools and Activity Measures				Xactive			Pathbreaker			Total
Supporting direct labor (direct labor-hours)	$	643,080			25,200			68,000		93,200
Batch setups (setups)		445,500			215			115		330
Product sustaining (number of products)		650,840			1			1		2
General factory (machine-hours)		59,340			1,800			6,800		8,600
Total manufacturing overhead cost	$	1,798,760
What is the total unit cost for xactive and path breaker?

Answer 1

1-a. Compute the predetermined overhead rate based on direct labor-hours.

Estimated total manufacturing overhead/Estimated total direct labor-hours

=1,798,760/93200

=$19.30 Per DLH

1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

	Xactive	Pathbreaker
Direct materials per unit	64.1	50.3
Direct labor cost per unit	17.5	12.3
Overhead Cost per unit $19.30 per DLG	27.02	19.3
unit product cost	108.62	81.9

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:

	Xactive	Pathbreaker
Direct materials per unit	64.10	50.30
Direct labor cost per unit	17.50	12.30
Overhead Cost per unit $19.30 per DLG	44.55	55.38
unit product cost	126.15	117.98

workings

		Total Expected Activity	Actvities rate
Supporting direct labor (direct labor-hours)	$643,080.00	93,200	$          6.90
Batch setups (setups)	$445,500.00	330	$    1,350.00
Product sustaining (number of products)	$650,840.00	2	$325,420.00
General factory (machine-hours)	$ 59,340.00	8600	$          6.90
	Xactive	Actvities rate
Supporting direct labor (direct labor-hours)	25,200	$                                   6.90	$173,880.00
Batch setups (setups)	215	$                             1,350.00	$290,250.00
Product sustaining (number of products)	1	$                          325,420.00	$325,420.00
General factory (machine-hours)	1800	$                                   6.90	$ 12,420.00
Overhead cost applied			801,970.00
No of units Produced			18,000.00
Overhead Cost per unit			44.55
	Pathbreaker	Actvities rate
Supporting direct labor (direct labor-hours)	68,000	$                                   6.90	$469,200.00
Batch setups (setups)	115	$                             1,350.00	$155,250.00
Product sustaining (number of products)	1	$                          325,420.00	$325,420.00
General factory (machine-hours)	6800	$                                   6.90	$ 46,920.00
Overhead cost applied			996,790.00
No of units Produced			18,000.00
Overhead Cost per unit			55.38