A company manufactures two models of speakers; the X200 model and the X99 model. Data regarding two products follow:
Model X20
Direct Labor-Hours per Unit=1.8
Annual Production (units)=5,000
Total Direct Labor Hours 9,000
Model X99
Direct Labor-Hours per Unit= 0.9
Annual Production (units)=30,000
Total Direct Labor Hours= 27,000
Total Direct Labor Hours=36,000
Additional Info:
a. Model X200 requires $72 in direct materials per unit, and model X99 requires $50
b. Direct labor wage rate is $10 per hour
c. Company always used direct labor hours as base for applying manufacturing overhead cost to products
d.Model X200 is more complex to manufacture than X99 and requires use of special equipment. Consequently, company is considering use of activity-based costing to
apply manufacturing overhead cost to products. 3 activity cost pools have been identified as follows:
Activity Cost Pool Activity Measure
Machine Setups ......................# of part types...........................$360,000
Special Processing XXXXXXXXXXMachine Hours........................$180,000
General factory..... XXXXXXXXXXDirect Labor Hours XXXXXXXXXX,260,000
Total: 1,800,000
Activity Measure
# of setups .............. XXXXXXXXXXModel X200)=50 (Model X99)=100 (Total)=150
Machine Hours ........ XXXXXXXXXXModel X200)=12,000 (Model X99)=0 (Total)=12,000
Direct Labor Hours. XXXXXXXXXXModel X200)=9,000 (Model X99)=27,000 (Total)=36,000
Required:
1. Assume company continues to use direct labor hours as base for applying overhead cost to products.
a. Computer predetermined overhead rate.
b. Compute unit product cost of each model.
2.Assume company decides to use activity based costing to apply manufacturing overhead cost to products.
a.Compute predetermined overhead rate for each activity cost pool and determine amount of overhead cost that would be applied to each model using activity based
costing system.
b.Compute unit product cost of each model.
3. Explain why manufacturing overhead cost shifts from Model X99 to X200 under activity based costing.