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Cabat Company manufactures two products, Product C and Product D. The company estimated it would incur $189,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period’s operations appear below:
| Product C | Product D | |||||||
| Estimated volume | 4,400 | units | 3,600 | units | ||||
| Direct labor-hours per unit | 2.40 | hours | 2.00 | hour | ||||
| Direct materials cost per unit | $ | 17.60 | $ | 30.90 | ||||
| Direct labor cost per unit | $ | 15.60 | $ | 12.00 | ||||
| Requried: | |
| a-1. | Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.) |
| Predertemined overhead rate | ____ per DLH |
| a-2. | Determine the unit product cost of each product for the current year. (Do not round your intermediate calculations. Round your final answer to 2 decimal places.) |
| Product C | Prodcut D | |
| Unit Product Cost |
| b. | The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: |
| Activity Cost Pools | Estimated Overhead Costs |
Expected Activity | |||
| Product C | Product D | Total | |||
| Machine setups | $ | 13,390 | 230 | 240 | 470 |
| Purchase orders | 78,840 | 1,060 | 1,400 | 2,460 | |
| General factory | 97,680 | 10,560 | 7,200 | 17,760 | |
| Total | $ | 189,910 | |||
Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.)
| Product C | Prodcut D | |
| Unit Product Cost |
Expert Answer
Total estimated labor hours = 4400 x 2.4 + 3600 x 2 = 17760 hours
Predetermined rate = 189910 / 17760 = 10.69 per hour
C cost = 17.60 D.M+15.60 D.L + 2.4 hrs x 10.69 per hr = 58.86
D cost = 30.90 D.M+12.00D.L +2 hrs x 10.69 per hr = 64.28
2) The activity rates for each activity cost pool are as follows:
| Machine setups | 13390 | 470 | 28.49 |
| Purchase orders | 78840 | 2460 | 32.05 |
| General factory | 97680 | 17760 | 5.50 |
| The overhead cost charged to each product is: | ||||
| Product C | Product D | |||
| Activity | Amount | Activity | Amount | |
| Machine setups | 230 | 6552.55 | 240 | 6837.45 |
| Purchase orders | 1060 | 33971.71 | 1400 | 44868.3 |
| General factory | 10560 | 58080.00 | 7200 | 39600 |
| Total | 98604.26 | 91305.74 | ||
| Overhead cost per unit | ||
| Product C: $98604.26 ÷ 4400 units = $22.41 per unit | ||
| Product D: $91305.74 ÷ 3600 units = $25.36 per unit | ||
| Using activity based costing, the unit product cost of each product would be: | ||
| Product C | Product D | |
| D.M | 17.6 | 30.9 |
| D.L | 15.6 | 12 |
| Manufacturing O.H | 22.41 | 25.36 |
| Total unit product cost | 55.61 | 68.26 |
