Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below Deluxe $ S $ Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production 12.00 2.70 DLHS 10,eee units Standard 42.ee le.ee 1.40 DLHS 5e,eee 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 $53e.ee 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 se,eee 55.eee $ 530,000 Deluxe 7. eee zee Standard 7e,eee 100 Total 77,000 300 100

Answer 1

Overhead rate under traditional system = Total estimated overhead costs/Estimated labor hours

= 530,000/77,000

= $6.88 per hour

Assigned

Deluxe = 7,000*6.88 = $48,160

Standard = 70,000*6.88 = $481,600

Calculation of unit cost:

	Deluxe	Standard
Direct material per unit	54	42
Direct labor	12	10
Overhead	4.816	9.632
Unit product cost	70.816	61.632
2.ABC
Cost Pool	Overheads	Driver	Allocation Rate
Supporting Direct Labor	385,000	77,000	5
Set up	90,000	300	300
Safety Testing	55,000	100	550
Assigned
	Standard	Deluxe
Supporting Direct Labor	35,000	350,000
Set up	60,000	30,000
Safety Testing	16,500	38,500
Total overhead	111,500	418,500
Unit cost
	Deluxe	Standard
Direct material per unit	54	42
Direct labor	12	10
Overhead	11.15	8.37
Unit product cost	77.15	60.37