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 55.00 13.00 0.70 DLHS 10,000 units Standard $ 43.00 $ 10.80 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 $457,000 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 Activity Cost Pools and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Safety testing (tests) Total manufacturing overhead cost Estimated Overhead Cost $ 308,000 93,000 56,000 $ 457,000 Deluxe 7,000 200 30 Standard 70,000 100 70 Total 77,000 300 100

Answer 1

Stillicum Corporation
Req. 1
Predetermined OH rate :-
457000/77000 = $ 5.935 per DLH
	Deluxe	Standard
DM	55	43
DL( 13*0.7) and ( 10.8 * 1.4)	9.1	15.12
Mfg. OH ( 5.935*0.7 ) and ( 5.935 * 1.4)	4.1545	8.309
Unit cost	68.2545	66.429
Req. 2
Calculation of Predetermined allocation Rate
	Total Cost /	Allocation base=	Predetermined allocation rate
Supporting DL	308000	77000	4	Per DLH
Batch setups	93000	300	310	per setup
Safety testing	56000	100	560	per test
	457000
Allocation of costs
Deluxe	Base usage	Activity Rate	Activity cost
Supporting DL	7000	4	28000
Batch setups	200	310	62000
Safety testing	30	560	16800
Total			106800
Units			10000
Activity cost per unit			10.68
Allocation of costs
Standard	Base usage	Activity Rate	Activity cost
Supporting DL	70000	4	280000
Batch setups	100	310	31000
Safety testing	70	560	39200
Total			350200
Units			50000
Activity cost per unit			7.004
	Deluxe	Standard
DM	55	43
DL( 13*0.7) and ( 10.8 * 1.4)	9.1	15.12
Mfg. OH	10.68	7.004
Unit cost	74.78	65.124