Question

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow: Direct Labor-Hours per unit 0.20 0.70 Annual Production 21,000 units 79,000 units Rims Posts Additional information about the company follows: a. Rims require $19 in direct materials per unit, and Posts require $15. b. The direct labor wage rate is $15 per hour. C. Rims are more complex to manufacture than Posts and they require special equipment. d. The ABC system has the following activity cost pools: Estimated Activity Activity Cost Pool Machine setups Special processing General factory Posts 90 Estimated Overhead Cost $ 34,760 $ 136,670 $ 819,000 Activity Measure Number of setups Machine-hours Direct labor-hours Rims 110 1,000 9,000 Total 200 1,000 63,000 54,000 Exercise 4-8 Part 2 2. 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.) Unit product cost of Rims Unit product cost of Posts

Answer 1

Solution

	Cost per Unit
Rims	$                    34.99
Posts	$                    34.58

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	$ 34,760	200	$          173.80	Per setup
Special processing	Number of machine hour	$ 136,670	1000	$          136.67	Per machine hour
Genegal factory	Number of Direct labor hour	$ 819,000	63000	$             13.00	Per Direct labor hour

.

Cost assigned to Rims
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$        173.80	110.00	$ 19,118
Special processing	$        136.67	1,000.00	$ 136,670
General factory	$           13.00	9,000.00	$ 117,000
Total Overheads assigned			$ 272788.0
Production			21,000.00
Overhead cost per unit			$ 12.99

.

Cost assigned to Posts
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$        173.80	90	$ 15,642
Special processing	$        136.67	0	$ 0
General factory	$           13.00	54000	$ 702,000
Total Overheads assigned			$ 717,642
Production			79,000.00
Overhead cost per unit			$                 9.08

.

ABC Costing
	Rims	Posts
Direct material	$                    19.00	$                     15.00
Direct labor (Rate x labor hours required)	$                      3.00	$                     10.50
Overheads	$                    12.99	$                        9.08
Total Cost per unit	$                    34.99	$                     34.58