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 2 hours of direct labor time per unit to manufacture compared to 1 hour 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 $888,455 in manufacturing overhead costs and produce 15,200 units of Product W and 60,800 units of Product S during the current year. Unit cost for materials and direct labor are:

	Product S			Product W
Direct material	$	13		$	30
Direct labor		14			19

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:

			Total Activity
Activity Cost Pool	Total Cost		Product S	Product W	Total
Machine setups required	$	387,260	1,110	1,780	2,890
Purchase orders issued		53,724	565	161	726
Machine-hours required		197,010	7,130	10,780	17,910
Maintenance requests issued		250,461	737	900	1,637
	$	888,455

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Compute the predetermined overhead rate under the current method of allocation. (Round your answer to 2 decimal places.)

	Predetermined overhead rate per DLH

Determine the unit product cost of each product for the current year. (Round your answers to 2 decimal places.)

	Unit Product Cost Product S Product W

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Round your answer to 2 decimal places.)

	Unit Product Cost Product S Product W

Answer 1

a-1)	Total Labor Hours
	For Product S		(60800 units x 1hr per unit)			60800
	For Product W		(15200 units x 2hr per unit)			30400
					(a)	91200
	Total estimated manufacturing OH				(b)	$ 888,455.00
	Predetermined OH rate				(b/a)	$             9.74

a-2)	Determination of unit product cost
	Particulars		Product S	Workings	Product W	Workings
	Direct Material		$    790,400.00	(60800 x $ 13)	$    456,000.00	($ 15200 x $ 30)
	Direct Labor		$    851,200.00	(60800 x $ 14)	$    577,600.00	($ 30400 x $ 19)
	OH		$    592,303.33	(60800 x $ 9.74)	$    296,151.67	($ 30400 x $ 9.74)
	Total cost		$ 2,233,903.33		$ 1,329,751.67
	No. of units		60800		15200
	Cost per unit		$              36.74		$              87.48

b)	Determination of unit product cost
	Particulars		Product S	Product W
	Direct Material		$   13.00	$   30.00
	Direct Labor		$   14.00	$   19.00
	OH		$      6.28	$   33.34
			$   33.28	$   82.34

Workings:

			Total	Total	Cost per
Activity Cost Pool			Costs	Activity	activity
Machine setups required			$ 387,260.00	2890	$ 134.00
Purchase orders issued			$   53,724.00	726	$   74.00
Machine-hours required			$ 197,010.00	17910	$   11.00
Maintenance requests issued			$ 250,461.00	1637	$ 153.00
			$ 888,455.00

Allocation of OH
			Cost per
Activity Cost Pool			activity	Product S	Workings	Product W	Workings
Machine setups required			$ 134.00	$ 148,740.00	($ 134 x 1110)	$ 238,520.00	($ 134 x 1780)
Purchase orders issued			$   74.00	$   41,810.00	($ 74 x 565)	$   11,914.00	($ 74 x 161)
Machine-hours required			$   11.00	$   78,430.00	($ 11 x 7130)	$ 118,580.00	($ 11 x 10780)
Maintenance requests issued			$ 153.00	$ 112,761.00	($ 153 x 737)	$ 137,700.00	($ 153 x 900)
				$ 381,741.00		$ 506,714.00
	No. of units			60800		15200
				$             6.28		$           33.34