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The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the companys activity cost pools for the current year are given below b. Total Activi Activity Cost Pools Total Cost Product K-7 Product L-15 Total 4,280 754 10,990 18,180 1,618 2,540 192 Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued $ 766,120 1,740 562 7,190 746 60,320 236,340 270,206 872 $1,332,986 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the $ sign in your response.) Product K-7 Product L-15 Direct materials Direct labour Manufacturing overhead 17 10 .14 25 19 7975 Total unit product cost
The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company’s activity cost pools for the current year are given below b. Total Activi Activity Cost Pools Total Cost Product K-7 Product L-15 Total 4,280 754 10,990 18,180 1,618 2,540 192 Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued $ 766,120 1,740 562 7,190 746 60,320 236,340 270,206 872 $1,332,986 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “$” sign in your response.) Product K-7 Product L-15 Direct materials Direct labour Manufacturing overhead 17 10 .14 25 19 7975 Total unit product cost
Expert Answer
A1) Since the company is allocating overhead on the basis of labour hours, the predetermined overhead rate:
Total no. of labor hours = 18300*2 + 73200*1 = 109800
Predetermined overhead rate = 1332986/109800
= 12.14
A2)
Unit product costs:
Product K-7 = Material cost + labor cost + overhead cost
= 17+10+12.14
= 39.14
Product L-15 = Material cost + labor cost + overhead cost
= 25+19+12.14*2
= 68.28
B)
| Activity Cost Pools | Total Cost | K-7 | L-15 | Total |
| Machine steup required | 766120 | 1740 | 2540 | 4280 |
| Purchase orders issued | 60320 | 562 | 192 | 754 |
| Machine hours required | 236340 | 7190 | 10990 | 18180 |
| Maintenance request issued | 270206 | 746 | 872 | 1618 |
| 1332986 |
| Activity Cost Pools | Total Cost | K-7 (Cost) | L-15 (Cost) | Total |
| Machine steup required | 766120 | =766120*1740/4280 | =766120*2540/4280 | 4280 |
| Purchase orders issued | 60320 | =60320*562/754 | =60320*192/754 | 754 |
| Machine hours required | 236340 | =236340*7190/18180 | =236340*10990/18180 | 18180 |
| Maintenance request issued | 270206 | =270206*746/1618 | =270206*872/1618 | 1618 |
| 1332986 |
| Activity Cost Pools | Total Cost | K-7 (Cost) | L-15 (Cost) | Total |
| Machine steup required | 766120 | 311460 | 454660 | 4280 |
| Purchase orders issued | 60320 | 44960 | 15360 | 754 |
| Machine hours required | 236340 | 93470 | 142870 | 18180 |
| Maintenance request issued | 270206 | 124582 | 145624 | 1618 |
| 1332986 |
Unit costs can be calculated by dividing the K-7(Cost) by total units i.e. 73200 and L-15 by 18300.
So,
| Activity Cost Pools | K-7 (Cost) | L-15 (Cost) |
| Machine steup required | 4.25 | 24.84 |
| Purchase orders issued | 0.61 | 0.84 |
| Machine hours required | 1.28 | 7.81 |
| Maintenance request issued | 1.70 | 7.96 |
| 7.85 | 41.45 |
So, Unit product costs:
Product K-7 = Material cost + labor cost + overhead cost
= 17+10+7.85
= 24.85
Product L-15 = Material cost + labor cost + overhead cost
= 25+19+41.45
= 85.45
