Question

High-Calibre Products Corporation makes two products: titanium rims and posts. Data regarding the two products follow: Direct Labour- Hours per Unit 0.30 0.15 Annual Production 34,000 units 150,000 units Rims Posts Additional information about the company follows: a. Rims require $20 in direct materials per unit, and posts require $13. b. The direct labour 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: Activity Activity Cost Pool Machine setups Special processing General factory Activity Measure Number of setups Machine-hours Direct labour-hours Estimated Overhead Cost $37, 120 $278, 800 $850,200 Rims 170 6,800 10,200 Posts 150 0 22,500 Total 320 6,800 32,700

1. Determine the unit cost of each product according to the ABC system, including direct materials and direct labour.

Unit Cost: Rims= _______

Posts= _______

Answer 1

Answer:

Overhead rate using ABC system

Overhead rate for Machine setups overheads = Estimated Overhead cost / Total Number of Setups

                                               = $37,120 / 320

                                                                 = $116 per machine setup

Overhead rate for Special Processing overheads = Estimated Overhead cost / Total Number of Machine hours

                                                      = $278,800 / 6,800

                                                      = $41 per machine hour

Overhead rate for General Factory overheads = Estimated Overhead cost / Total Number of Direct Labor hours

                                                                 = $850,200 / 32,700

                                                                 = $26 per Direct Labor hour

Annual Production of Rims = 34,000 units

Annual Production of Posts = 150,000 units

Unit Cost = Total Manufacturing Costs / No, of units produced

Total Manufacturing Cost = Direct Materials + Direct Labor + Overhead Cost

Overhead Cost = (Machine setups overheads + Special Processing overheads+ General Factory overheads)

Total Manufacturing Cost of Rims

= ($20 per unit * 34,000 units ) + ($15 per hour * 0.3 hour * 34,000 units) + ($116 per machine setup * 170 machine setups) + ($41 per machine hour * 6800 machine hours) + ($26 per Direct Labor * 10,200 Direct Labor hours)

= $680,000 + $153,000 + $19,720 + $278,800 + $265,200

= $1,396,720

Total Manufacturing Cost of Posts

= ($13 per unit * 150,000 units ) + ($15 per hour * 0.15 hour * 150,000 units) + ($116 per machine setup * 150 machine setups) + ($41 per machine hour * 0 machine hours) + ($26 per Direct Labor * 22,500 Direct Labor hours)

= $1,950,000 + $337,500 + $17,400 + 0 + $585,000

= $2,889,900

Unit Cost = Total Manufacturing Costs / No, of units produced

Rims Unit Cost = $1,396,720 / 34,000 units = $41.08 per unit

Posts Unit Cost = $2,889,900 / 150,000 units = $19.266 per unit