Question

Rocky Mountain corporation

Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product line appear below: Direct materials per unit Direct labor cost per unit Direct labor-hours per unit Estimated annual production and sales Xactive $65.20 $ 18.60 1.4 DLHS 29,000 units Pathbreaker $ 51.40 $ 13.40 1 DLHS 79,000 units The company has a conventional 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 $2.439,840 119,600 DLR Required: 1-a. Compute the predetermined overhead rate based on direct labor-hours. 1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product 2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign manufacturing overhead to the following four activity cost pools: Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) General factory (machine-hours) Total manufacturing overhead coat Estimated Overhead Coat $ 891,020 -836,000 632,360 80,460 $ 2.439,840 Expected Activity Xactive Pathbreaker Total 40,600 7 9,000 119,600 270 170 440 2,900 7.900 10,800 Determine the activity rate for each of the four activity cost pools.

Answer 1

Solution 1a:

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours

= $2,439,840 / 119600 = $20.40 per DLH

Solution 1b:

Computation of unit product cost - Traditional costing
Particulars	Xactive	Pathbreaker
Direct material per unit	$65.20	$51.40
Direct labor per unit	$18.60	$13.40
Manufacturing overhead cost per unit (Direct labor hour per unit * Overhead rate per direct labor hour)	$28.56	$20.40
Unit Product Cost	$112.36	$85.20

solution 2:

Determination of activity rate for each activity & allocation of overhead
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Xactive		Pathbreaker
					Usage	Allocated Costs	Usage	Allocated Costs
Supporting direct labor cost	$891,020.00	Direct Labor hours	119600	$7.45	40600	$302,470.00	79000	$588,550.00
Batch Setups	$836,000.00	Setups	440	$1,900.00	270	$513,000.00	170	$323,000.00
Product sustaining	$632,360.00	Number of products	2	$316,180.00	1	$316,180.00	1	$316,180.00
General Factory	$80,460.00	Machine hours	10800	$7.45	2900	$21,605.00	7900	$58,855.00
Total	$2,439,840.00					$1,153,255.00		$1,286,585.00
Nos of units						29000		79000
Allocated overhead per unit						$39.77		$16.29

Solution 3:

Computation of unit product cost - Activity Based costing
Particulars	Xactive	Pathbreaker
Direct material per unit	$65.20	$51.40
Direct labor per unit	$18.60	$13.40
Manufacturing overhead cost per unit	$39.77	$16.29
Unti Product Cost	$123.57	$81.09