Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below: Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production Deluxe $ 58.00 $ 16.00 0.70 DLHS 10,000 units Standard $ 46.00 $ 13.20 1.40 DLHS 50,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Estimated total manufacturing overhead Estimated total direct labor-hours $546,000 77,000 DLHS Required: 1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools: Expected Activity Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Safety testing (tests) Total manufacturing overhead cost Estimated Overhead Cost $ 385,000 102,000 59,000 $ 546,000 Deluxe Standard 7,000 70,000 200 100 70 Total 77,000 300 100 30 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Deluxe Standard Unit product cost

Answer 1

Answer : Requirement 1		Deluxe	Standard
	Unit product cost	78.96	69.13
Answer : Requirement 2		Deluxe	Standard
	Unit product cost	86.07	67.71
Detailed workings for above answers
Calculation of unit product cost under traditional costing system
Calculation of overhead rate on the basis of direct labor hours
Calculation of overhead rate on Direct labor hours
	Estimated Overhead	=/	Total direct labor hours	=	overhead rate
Overhead rate	546000	/	77000	=	$                 7.09
Calculation of unit product cost of Deluxe
			Rate
Direct Material	10000	units	58	$        580,000
Direct Labor	10000	units	16	$        160,000
Overhead =10000*0.70	7000	Hours	7.09	$          49,630
Total Production cost of Delux				$        789,630
Unit produced				10000	Units
Product cost per unit			=789630/10000	78.96	Per unit
Calculation of unit product cost of Standard
			Rate
Direct Material	50000	units	46	$    2,300,000
Direct Labor	50000	units	13.2	$        660,000
Overhead = 50000*1.40	70000	Hours	7.09	$        496,300
Total Production cost of Standard				$    3,456,300
Unit produced				50000	Units
Product cost per unit			=3456300/50000	69.13	Per unit
Calculation of unit product cost under Activity Based absorpton system
Calculation of overhead rate on the basis of direct labor hours
Calculation of overhead rate on ABC basis
	Estimated Overhead	=/	Total Activity	=	overhead rate
Supporting direct labor	385000	=/	77000	=	$                       5	per hour
Batch setups	102000	=/	300	=	$                  340	per setup
Safety testing	59000	=/	100	=	$                  590	per test
Calculation of overhead for Deluxe
	Activity for Delux	x	Rate	=	overhead
Supporting direct labor	7000	x	5	=	$            35,000
Batch setups	200	x	340	=	$            68,000
Safety testing	30	x	590	=	$            17,700
Total					$          120,700
Calculation of unit product cost of Deluxe
			Rate
Direct Material	10000	units	58	$        580,000
Direct Labor	10000	units	16	$        160,000
Overhead	Calculated above			$        120,700
Total Production cost of Delux				$        860,700
Unit produced				10000	Units
Product cost per unit			=78963/10000	86.07	Per unit
Calculation of overhead for Standard
	Activity for Delux	x	Rate	=	overhead
Supporting direct labor	70000	x	$                                    5.00	=	$          350,000
Batch setups	100	x	$                                340.00	=	$            34,000
Safety testing	70	x	$                                590.00	=	$            41,300
Total					$          425,300
Calculation of unit product cost of Standard
			Rate
Direct Material	50000	units	46	$    2,300,000
Direct Labor	50000	units	13.2	$        660,000
Overhead	Calculated above			$        425,300
Total Production cost of Delux				$    3,385,300
Unit produced				50000	Units
Product cost per unit			=3385300/50000	67.71	Per unit