Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hours of direct labor time for Product S. Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $1,072,715 in manufacturing overhead costs and produce 15,000 units of Product W and 75,000 units of Product S during the current year. Unit cost for materials and direct labor are: Direct material Direct labor Products $ 18 11 Product W $ 30 15 Required: a-1. Compute the predetermined overhead rate under the current method of allocation. a-2. Determine the unit product cost of each product for the current year. b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Activity Cost Pool Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued Total Cost $ 531,570 53,703 301,280 186,162 $1,072, 715 Products 1,370 508 7,960 711 Total Activity Product W 2,400 155 10, 870 922 Total 3,770 663 18,830 1,633 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. Complete this question by entering your answers in the tabs below. Req A1 Req A2 Reg B Compute the predetermined overhead rate under the current method of allocation. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLH

Answer 1

a-1. Predetermined overhead rate based on direct labor hours
= Total manufacturing overheads / Total direct labor hours
= $1,072,715 / 195,000 direct labor hours = $5.50 per DLH
* Calculation of total direct labor hours:
Product S = 2 direct labor hours per unit x 75,000 units = 150,000 direct labor hours
Product W = 3 direct labor hours per unit x 15,000 units = 45,000 direct labor hours
Total = 150,000 + 45,000 direct labor hours = 195,000 direct labor hours
a-2. Unit product cost of each product for the current year
Particulars	Product S	Product W
Direct materials cost	$18.00	$30.00
Direct labor cost	$11.00	$15.00
Manufacturing overheads cost: Product S ($5.50 per DLH x 2 DLH per unit) ; Product W ($5.50 per DLH x 3 DLH per unit)	$11.00	$16.50
Total product cost	$40.00	$61.50
b. Unit product cost of each product based on activity-based costing
Particulars	Product S	Product W
Direct materials cost	$18.00	$30.00
Direct labor cost	$11.00	$15.00
Manufacturing overheads cost (Refer WN-1)	$5.90	$42.00
Total product cost	$34.90	$87.00
WN-1: Manufacturing overheads cost allocated to each product:
Activity Cost Pool	Total Cost (A)	Total activity (B)	Activity Rate (A / B)
Machine setups required	$5,31,570	3,770	$141
Purchase orders issued	$53,703	663	$81
Machine-hours required	$3,01,280	18,830	$16
Maintenance requests issued	$1,86,162	1,633	$114
Total	$10,72,715
Allocation of overheads cost to Product S:
Particulars	Activity Rate (A)	Total Activity (B)	Allocated cost (A x B)
Machine setups required	$141	1,370	$1,93,170
Purchase orders issued	$81	508	$41,148
Machine-hours required	$16	7,960	$1,27,360
Maintenance requests issued	$114	711	$81,054
Total manufacturing overheads cost (1)			$4,42,732
Total units (2)			75,000
Per unit manufacturing overheads cost (1/2)			$5.90
Allocation of overheads cost to Product W:
Particulars	Activity Rate (A)	Total Activity (B)	Allocated cost (A x B)
Machine setups required	$141	2,400	$3,38,400
Purchase orders issued	$81	155	$12,555
Machine-hours required	$16	10,870	$1,73,920
Maintenance requests issued	$114	922	$1,05,108
Total manufacturing overheads cost (1)			$6,29,983
Total units (2)			15,000
Per unit manufacturing overheads cost (1/2)			$42.00