Question

1. Reitler, Inc., manufactures and sells two products: Product A2 and Product N7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

		Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
	Product A2	100	7.0	700
	Product N7	800	9.0	7,200
	Total direct labor-hours			7,900

The direct labor rate is $26.80 per DLH. The direct materials cost per unit for each product is given below:

		Direct Materials Cost per Unit
	Product A2	$151.60
	Product N7	$205.00

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Activity Cost Pools	Activity Measures	Estimated Overhead Cost			Expected Activity
					Product A2	Product N7	Total
Labor-related	DLHs	$	361,267		700	7,200	7,900
Product testing	Tests		49,777		300	400	700
Order size	MHs		263,736		4,500	4,300	8,800
		$	674,780

Required:

In all computations involving dollars in the following requirements, round off your answer to the nearest whole cent.

1. The company currently uses a traditional costing method in which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.

2. How much overhead would be applied to each product under the company's traditional costing method?

3. Determine the unit product cost of each product under the company's traditional costing method.

4. Compute the activity rates under the activity-based costing system.

5. Determine how much overhead would be assigned to each product under the activity-based costing system.

6. Determine the unit product cost of each product under the activity-based costing method.

Answer 1

1. Pre determined basis of overhead crate on the inta direct labour hours. Overhead Rate = Total Overheads 2. Totol direet tabour 2 hours 674780 7900 $ 79.719/ laboly bous of to each of Application the two Diverhead produits Proded I A2 Produt N7 FOSS Labour hours 700 7200 Overhead applied t 55803 573972 800 Number of units for Ouerhead cost per unit. too ! 558.03 717.25

© Computatien of unit produit cost in by die _A 2 N7 Material Cost 151.6 Labour cost o of brant 1876 din 941.22 Overhead cost. 558-03717.47 Total unit produit cost 897.23. 11163-67. © Activity Ratis under . ABC, ta fitubos fal labour Related 29 = 0,361 267 7900 = $ 45.73 per Labour hour. first 150 b Peoduct testing 49777 700 EUR = $71.1 per tests.

galatan © Order size za 263736 8800 Fit S4 =$29.97 pes machine hour. 6 Aldation of overhead FAETE 20.273 FREDIT SO to each product As time miliona Az NZ 32011 | 32925 Labour Related Poodut Testing b 213339.8444 Order size 134865 128871 Total Overhead Ear 188209 46657 units 100 800 Number of Owerhead per unit 1882.09 1 608.21 FESA, et

© Computation of cost of each produit. Material Cost 151.6 205 Labour Lost 187.6 24102 Overhead cost 1882.09. 608:21 Total cost per uit | 2221.29 1054.41

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