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Cabot Company manufactures two products, Product C and Product D. The company estimated it would incur $177,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below:
Product C Product D
Estimated volume 3,800 units 3,000 units
Direct labor hours per unit 1.20 hours 0.80 hour
Direct materials cost per unit $11.60 $23.70
Direct labor cost per unit $10.80 $7.20
Requried:
a-1. Compute the predetermined overhead rate under the current method.
a-2. Determine the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Activity Cost Pools Estimated Overhead Costs Expected Activity
Product C Product D Total
Machine setups $12,890 180 190 370
Purchase orders 77,340 960 1,300 2,260
General factory 94,680 7,885 5,025 12,910
Total $184,910
Determine the unit product cost of each product for the current period using the activity-based costing approach.

Answer :

Facundobuzzettigo

Answer:

Results are below.

Explanation:

a)

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 177,910 / (1.2*3,800 + 0.8*3,000)

Predetermined manufacturing overhead rate= $25.56 per direct labor hour

Now, we can allocate overhead to each Product line:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Product C= 25.56*4,560= $116,553.6

Product D= 25.56*2,400= $61,344

Unitary overhead Product C= 116,553.6/3,800= $30.67

Unitary overhead Product D= 61,344/3,000= $20.45

Finally, the unitary cost per product:

Product C= 30.67 + 11.6 + 10.8= $53.07

Product D= 20.45 + 23.7 + 7.2= $51.35

b)

First, we need to calculate the activities rates:

Machine setups= 12,890/370= $34.84

Purchase orders= 77,340/2,260= $34.22

General factory= 94,680/12,910= $7.33

Now, we allocate costs to each product:

Product C:

Machine setups= 34.84*180= 6,271.2

Purchase orders= 34.22*960= 32,851.2

General factory= 7.33*7,885= 57,797.05

Total= $96,919.45

Product D:

Machine setups= 34.84*190= 6,619.6

Purchase orders= 34.22*1,300= 44,486

General factory= 7.33*5,025= 36,833.25

Total= $87.938.85

Finally, the unitary overhead and unitary total cost:

Product C:

Unitary overhead= 96,919.45/3,800= $25.51

Unitary product cost= 25.51 + 11.6 + 10.8= $47.91

Product D:

Unitary overhead= 87,938.85/3,000= $29.31

Product D= 29.31 + 23.7 + 7.2= $60.21

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