Question

Chang 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, Plain and Fancy, about which it has provided the following data:

	Plain				Fancy
Direct materials per unit	$	24.50			$	59.30
Direct labor per unit	$	5.00			$	25.00
Direct labor-hours per unit		0.20				1.00
Annual production		45,000				15,000

The company's estimated total manufacturing overhead for the year is $985,440 and the company's estimated total direct labor-hours for the year is 24,000.

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)		$	384,000
Setting up machines (setups)			255,840
Parts administration (part types)			345,600
Total		$	985,440

	Expected Activity
	Plain		Fancy		Total
DLHs	9,000		15,000		24,000
Setups	1,032		936		1,968
Part types	624		240		864

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

Multiple Choice

• $71.57.

• $41.06.

• $8.11.

• $30.51.

Answer 1

Ans.	Option   4th   $30.51
	Activity	Overhead cost	Total Expected Activity	Activiy rate		Activity of Fancy	Overhead assigned
		( A)	(B)	©		(D)	(C*D)
	Supporting direct labor	$384,000	24000	$16	per DLH	15000	$240,000
	Setting up machines	$255,840	1968	$130	per setup	936	$121,680
	Parts administration	$345,600	864	$400	per part type	240	$96,000
	Total Overhead Cost assigned to Product Fancy						$457,680
	*Calculations of per unit overhead cost assigned to product Fancy:
	Total overhead cost assigned (a)		$457,680
	Annual production   (b)		15000
	Overhead cost per unit   (a / b)		$30.51