Question

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Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

   

	Direct Labor-Hours per unit	Annual Production
Rims	0.30	21,000 units
Posts	0.80	80,000 units

Additional information about the company follows:

1. Rims require $13 in direct materials per unit, and Posts require $9.
2. The direct labor wage rate is $19 per hour.
3. Rims are more complex to manufacture than Posts and they require special equipment.
4. The ABC system has the following activity cost pools:

		Estimated Activity
Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Rims	Posts	Total
Machine setups	Number of setups	$	28,800	90	110	200
Special processing	Machine-hours	$	128,800	4,000	0	4,000
General factory	Direct labor-hours	$	1,008,000	3,000	60,000	63,000

Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Answer 1

Solution

	Cost per Unit
Rims	$                    27.74
Posts	$                    36.40

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setups	Number of setup	$ 28,800	200	$          144.00	Per setup
Special processing	Number of machine hour	$ 128,800	4000	$             32.20	Per machine hour
General Factory	Number of Direct labor hour	$ 1,008,000	63000	$             16.00	Per Direct labor hour

.

Cost assigned to Rims
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$        144.00	90.00	$ 12,960
Special processing	$           32.20	4,000.00	$ 128,800
General Factory	$           16.00	3,000.00	$ 48,000
Total Overheads assigned			$ 189760.0
Production			21,000.00
Overhead cost per unit			$ 9.04

.

Cost assigned to Posts
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$        144.00	110	$ 15,840
Special processing	$           32.20	0	$ 0
General Factory	$           16.00	60000	$ 960,000
Total Overheads assigned			$ 975,840
Production			80,000.00
Overhead cost per unit			$               12.20

.

ABC Costing
	Rims	Posts
Direct material	$                    13.00	$                        9.00
Direct labor (Rate x labor hours per unit)	$                      5.70	$                     15.20
Overheads	$                      9.04	$                     12.20
Total Cost per unit	$                    27.74	$                     36.40