Question

same information used for all q1

Required information [The following information applies to the questions displayed below.] For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.60 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.20 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: Direct materials Direct labor (0.20 hours and 0.60 hours @ $15.00 per hour) LEC 40 $20.00 $ 3.00 LEC 90 $46.00 $ 9.00 Management estimates that the company will incur $920,000 in manufacturing overhead costs during the current year and 80,000 units of the LEC 40 and 40,000 units of the LEC 90 will be produced and sold.

q1 part 2

q2 (also use information from first chart)

Answer 1

Question 1

Plantwide Overhead Rate = Total Estimated Manufacturing Overhead / Total Direct Labour Hours

Total Estimated Manufacturing Overhead = $ 920,000

Total Estimated Direct Labour Hours = 40,000 Hours

Plantwide Overhead Rate = 920,000 / 40,000

Plantwide Overhead Rate = $ 23 per Direct Labour Hour

Notes :

Calculation of Direct Labour Hours

LEC 90 = 40,000 Units * 0.6 Hour per Unit = 24,000 Hours

LEV 40 = 80,000 Units * 0.2 Hours per Unit = 16,000 Hours

Total Direct Labour Hours = 40,000

Particulars	LEC 40	LEC 90
Direct Materials Cost per Unit	20	46
Direct Labour Cost per Unit	3	9
Overhead Costs per Unit	4.60	13.80
Unit Product Cost	27.60	68.80

NOTES

Overhead Cost per Unit

For LEC 40 = 16,000 Direct Labour Hours * $ 23 per Hour / 80,000 Units = $ 4.6 per Unit

For LEC 90 = 24,000 Direct Labour Hours * $ 23 / 40,000 Units = $ 13.8

Hours Calculation is already done above

Question 2

Activity Based Costing

Calculation of Unit Product Cost

Particulars	LEC 40	LEC 90
Direct Materials Cost per Unit	20	46
Direct Labour Cost per Unit	3	9
Overhead Costs per Unit	4.85	13.30
Unit Product Cost	27.85	68.30

	A.	B	C = A/B
Particulars	Estimated Overhead Cost	Total Activity Level	Activity Allocation Rate
Maintaining Parts Inventory	258,000	2,150	120	Per Part Type
Processing Purchase Order	80,000	2,000	40	Per Purchase Order
Quality Control	32,000	3,200	10	Per Test
Machine Related	550,000	10,000	55	Per Machine Hour
Total Manufacturing Overheads Costs	920,000

Additional Information

Particulars	Total Activity Level for LEC 40	Activity Allocation Rate	Total Overhead
Maintaining Parts Inventory	750	120	90,000
Processing Purchase Order	1,600	40	64,000
Quality Control	1,400	10	14,000
Machine Related	4,000	55	220,000
Total			388,000
÷ Units			80,000
Overhead Cost per Unit			4.85

Particulars	Total Activity Level for LEC 90	Activity Allocation Rate	Total Overhead
Maintaining Parts Inventory	1,400	120	168,000
Processing Purchase Order	400	40	16,000
Quality Control	1,800	10	18,000
Machine Related	6,000	55	330,000
Total			532,000
÷ Unit Produced			40,000
Overhead Cost per Unit			13.30

Total Overhead = Activity Level * Activity Allocation Rate