Question

Thanks for the help!

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 1 hour of direct labor time for Product S. Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $998.780 in manufacturing overhead costs and produce 15,000 units of Product W and 75,000 units of Product S during the current year. Unit cost for materials and direct labor are: Direct material Direct labor Product S Product W $ 21 $ 25 11 Required: a-1. Compute the predetermined overhead rate under the current method of allocation. a-2. Determine the unit product cost of each product for the current year. b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Activity Cost Pool Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued Total Cost $ 496,080 50,024 246,540 206,136 $ 998,780 Product 1,450 540 7,090 Total Activity Product W 1,670 136 10,520 941 Total 3,120 676 17,610 1,636 695 Using the data above and an activity based costing approach, determine the unit product cost of each product for the current year.

Answer 1

Solution

	Cost per Unit
Product S	$                    38.10
Product W	$                    81.10

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setup required	Number of setup	$ 496,080	3120	$          159.00	Per setup
purchase order required	Number of order	$ 50,024	676	$             74.00	Per order
Machine hour required	Number of machine hour	$ 246,540	17610	$             14.00	Per machine hour
Maintenance requiest issued	Number of request	$ 206,136	1636	$          126.00	Per request

.

Cost assigned to Product S
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup required	$        159.00	1,450.00	$ 230,550
purchase order required	$           74.00	540.00	$ 39,960
Machine hour required	$           14.00	7,090.00	$ 99,260
Maintenance request issued	$        126.00	695.00	$ 87,570
Total Overheads assigned			$           457,340.00
Production			75,000.00
Overhead cost per unit			$ 6.10

.

Cost assigned to Product W
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup required	$        159.00	1670	$ 265,530
purchase order required	$           74.00	136	$ 10,064
Machine hour required	$           14.00	10520	$ 147,280
Maintenance request issued	$        126.00	941	$ 118,566
Total Overheads assigned			$           541,440.00
Production			15,000.00
Overhead cost per unit			$               36.10

.

ABC Costing
	Product S	Product W
Direct material	$                    21.00	$                     25.00
Direct labor	$                    11.00	$                     20.00
Overheads	$                      6.10	$                     36.10
Total Cost per unit	$                    38.10	$                     81.10