Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product Wis the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hour of direct labor time for Product S. Product Wis produced on an automated production line. Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $1,139,421 in manufacturing overhead costs and produce 15,000 units of Product W and 75,000 units of Product S during the current year. Unit cost for materials and direct labor are: Direct material Direct Labor Products $ 17 Product W $24 13 Required: 0-1. Compute the predetermined overhead rate under the current method of allocation, a-2. Determine the unit product cost of each product for the current year. b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Activity Cost Pool Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued Total 3,830 Total Activity Product W 2,240 192 10,710 Product S 1,590 555 7,760 736 Total Cost $ 643,440 58.266 221,640 216,275 $1,139,421 747 939 18,470 1.675 Using the data above and an activity based coyting approach, determine the unit product cost of each product for the current year Complete this question by entering your answers in the tabs below. Red Al Reg A2 Reg B Compute the predetermined overhead rate under the current method of allocation. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLHI Reg A2 >

Answer 1

Solution a1:

Estimated direct labor hours = (15000*3) + (75000*2) = 195000 hours

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours

= $1,139,421 / 195000 = $5.84 per DLH

Solution a2:

Computation of unit cost of each product - Traditional costing
Particulars	Product W	Product S
Direct material	$24.00	$17.00
Direct labor	$13.00	$11.00
Manufacturing overhead	$17.52	$11.68
Unit Product Cost	$54.52	$39.68

Solution b:

Allocation of overhead and computation of overhead cost per unit
Activity	Estimated Overhead Cost	Usage of Activity Base	Activity Rate	Product W		Product S
				Usage	Allocated Costs	Usage	Allocated Costs
Machine setup required	$643,440.00	3830	$168.00	2240	$376,320	1590	$267,120
Purchase order issued	$58,266.00	747	$78.00	192	$14,976	555	$43,290
Machine hours required	$221,640.00	18470	$12.00	10710	$128,520	7760	$93,120
Maintenance request issued	$216,075.00	1675	$129.00	939	$121,131	736	$94,944
Total	$1,139,421.00				$640,947		$498,474
Nos of units					15000		75000
Overhead cost per unit					$42.73		$6.65

Computation of unit cost of each product - Activity Based costing
Particulars	Product W	Product S
Direct material	$24.00	$17.00
Direct labor	$13.00	$11.00
Manufacturing overhead	$42.73	$6.65
Unit Product Cost	$79.73	$34.65