Question

Perez Company produces mathematical and financial calculators and operates at capacity. Data related to the two products follows Requirements 1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. Compute the manufacturing cost per unit for each product. How might Perez's managers use the new cost information from its activity-based costing system to better manage its business? Click the icon to view the data.) 2. 3. Total manufacturing overhead costs are: Total Machining costs Setup costs Inspection costs 360,000 108,000 102,000 Requirement 1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. Begin by choosing a cost driver for each overhead cost pool Activity Cost driver Rate Machine hours per labor hour Machining Set up Inspection Determine the formula to calculate the overhead allocated to each product. Production runs per production run Inspection-hours per labor hour Overhead allocated to product Now calculate the total overhead allocated to each product and the overhead cost per unit. (Round your answer to the nearest cent.) Mathematical Financial Machining costs Setup costs Inspection costs Total overhead costs Manufacturing overhead cost per unit Requirement 2. Compute the manufacturing cost per unit for each product. Determine the formula to calculate the direct costs per unit. - Direct cost per unit Now compute the manufacturing cost per unit for each product. Mathematical Financial Manufacturing cost per unit Requirement 3. How might Perez's managers use the new cost information from its activity-based costing system to better manage its business? (Select all that apply.) A. Managers can use this information to improve advertising campaigns and their public image. B. Managers can use this information for design decisions, and to plan and manage activities. □ C. Managers can use this information for pricing and product-mix decisions, and for cost reduction and process-improvement decisions. D. Managers can use this information to devise employee compensation packages. Data Table Mathematical Financial Annual production in units Direct materials cost Direct manufacturing labor cost Direct manufacturing labor-hours Machine-hours Number of production runs Inspection hours 100,000 200,000 400,000 75,000 $ 150,000 5,000 40,000 40 400 50,000 2,500 20,000 40 800

Answer 1

1.

Activity	Cost driver	Rate
Machining	Machine-hours	$               6	per machine hour
Set up	Production runs	$       1,350	per production run
Inspection	Inspection-hours	$             85	per inspection hour

Estimated Activity usage x Activity Rate = Overhead allocated

	Mathematical	Financial
Machining costs	120000	240000
Setup costs	54000	54000
Inspection costs	68000	34000
Total overhead costs	242000	328000
Number of units produced	50000	100000
Manufacturing overhead cost per unit	$                4.84	$                3.28

2. Total direct cost/Number of units produced = Direct cost per unit

	Mathematical	Financial
Direct materials cost	4.00	4.00
Direct manufacturing labor cost	1.50	1.50
Manufacturing overhead cost	4.84	3.28
Manufacturing cost per unit	$              10.34	$                8.78

3.

B. Managers can use this information for design decisions, and to plan and manage activities.

C. Managers can use this information for pricing and product-mix decisions, and for cost reduction and process-improvement decisions.