Question

Siegel Corporation produces a product that is available in both a Deluxe and a Regular model. It is estimated that $2,410,000 in manufacturing overhead costs will be incurred and that the company will produce 9,500 units of the Deluxe model and 20,000 units of the Regular model. The Direct Materials and Direct Labor costs per unit are as follows: Deluxe Regular Direct Materials cost per unit.... $155 $124 Direct Labor cost per unit.. $20 $11 The company uses Activity-Based Costing to allocate manufacturing overhead costs to its products. Four activity cost pools and their associated activities are as follows: Estimated Overhead Estimated Activity Deluxe Regular Cost Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine-related (machine hours) Total Estimated Overhead $ 100,000 220,000 480,000 1,610,000 $2,410,000 300 orders 500 requests 6,000 tests 16,000 hours 700 orders 600 requests 10,000 tests 24,250 hours Compute the following: - The activity rate for each Activity Cost Pool; The unit Manufacturing Overhead cost for each model: The unit product cost for each model

Answer 1

Calculation of activity rates :
	Estimated activity
Activity cost pool	Deluxe	Regular	Total
Purchase orders	300	700	1000
Rework requests	500	600	1100
Product testing	6000	10000	16000
Machine related	16000	24250	40250
Activity cost pool	Activity rates
Purchase orders ( 100000 / 1000 )	100	per order
Rework requests ( 220000 / 1100 )	200	per request
Product testing ( 480000 / 16000 )	30	per test
Machine related ( 1610000 / 40250 )	40	per machine hour

Calculation of Unit manufacturing overhead cost for each model :
Allocation of manufacturing overhead :	Deluxe	Regular
Purchase orders	30000 [ 300*100 ]	70000 [ 700*100 ]
Rework requests	100000 [ 500*200 ]	120000 [ 600*200 ]
Product testing	180000 [ 6000*30 ]	300000 [ 10000*30 ]
Machine related	640000 [ 16000*40 ]	970000 [ 24250*40 ]
Total overhead allocated	950000	1460000
(/) Production in units	9500	20000
Unit manufacturing overhead cost	100	73

Calculation of Unit product cost :
	Deluxe	Regular
Direct materials cost per unit	155	124
Direct labor cost per unit	20	11
Unit manufacturing overhead cost	100	73
Unit product cost	275	208