Question

Look Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, N06D and M09K, about which it has provided the following data:

	N06D			M09K
Direct materials per unit	$	31.80		$	63.30
Direct labor per unit	$	10.00		$	27.00
Direct labor-hours per unit		0.20			1.00
Annual production (units)		45,600			21,100

The company's estimated total manufacturing overhead for the year is $1,632,986 and the company's estimated total direct labor-hours for the year is 30,220.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Supporting direct labor (DLHs)	$	695,060
Setting up machines (setups)		551,702
Parts administration (part types)		386,224
Total	$	1,632,986

	Expected Activity
	N06D	M09K	Total
DLHs	9,120	21,100	30,220
Setups	1,450	1,024	2,474
Part types	677	279	956

The manufacturing overhead that would be applied to a unit of product M09K under the activity-based costing system is closest to:

Multiple Choice

• $80.22

• $49.71

• $16.76

• $39.16

Answer 1

Correct answer----------$39.16

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost	Expected Activity (B)	Activity rate (A/B)
Supporting Direct labor	Number of DLHs	$ 695,060	30,220.00	$          23.00	Per DLH
Setting up machines	Number of Setups	$ 551,702	2474	$       223.00	Per Setup
Parts administration	Number of Part types	$ 386,224	956	$       404.00	Per Part type

Cost assigned to M09K
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Supporting Direct labor	$                     23.00	21100.00	$ 485300.00
Setting up machines	$                   223.00	1024	$ 228352.00
Parts administration	$                   404.00	279	$ 112716.00
Total Overheads assigned			$ 826,368
Production			21100
Overhead cost per unit			$             39.16