Question

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company's two product lines appear below. Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production Deluxe $ 68.00 $ 26.00 0.70 DLHS 10,000 units Standard $ 56.00 $ 21.20 1.40 DLHS 50,000 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 $586,000 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 Estimated Overhead Cost CU A Activity Cost Pools (and Activity Measures) Curtino rert 1 har dirarTaher hour Deluxe 7 An Standard 70 An Total 77 A

Answer 1

1)

Computation of unit product cost under traditional costing
Particulars			Deluxe	Standard
Direct Material			$   68.00	$   56.00
Direct Labor			$   26.00	$   21.20
Manufacturing OH			$      5.33	$   10.65
			$   99.33	$   87.85

Workings:

Predetermined OH rate			=	Estimated total Manu. OH / Estimated total direct labor hours
			=	$ 586000 / 77000
			=	$      7.61

2)

Computation of unit product cost under ABC
Particulars			Deluxe	Standard
Direct Material			$   68.00	$   56.00
Direct Labor			$   26.00	$   21.20
Manufacturing OH			$   14.37	$      8.85
			$ 108.37	$   86.05

Workings:

Computation of activity rates
				Total	Activity
Cost pool			OH Cost	Activity	Rate
Supporting direct labor			$ 3,85,000.00	77000	$      5.00
Batch setups			$ 1,32,000.00	300	$ 440.00
Safety testing			$    69,000.00	100	$ 690.00
			$ 5,86,000.00

Application of manufacturing OH
		Activity
Cost pool		Rate	Deluxe	Standard
Supporting direct labor		$      5.00	$    35,000.00	$ 3,50,000.00
Batch setups		$ 440.00	$    88,000.00	$    44,000.00
Safety testing		$ 690.00	$    20,700.00	$    48,300.00
			$ 1,43,700.00	$ 4,42,300.00
Estimated annual production			10000	50000
OH per unit			$            14.37	$              8.85

Please let me know if you find anything incorrect. Thank you