Problem:
1. Cabalo Company manufactures two products, Product C and Product D. The company estimated it would incur $130,890 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 unit production
|
400 units
|
1,200 units
|
|
Direct labor hours per unit
|
0.70 hour
|
1.20 hours
|
|
Direct materials cost per unit
|
$10.70
|
$16.70
|
|
Direct labor cost per unit
|
$11.20
|
$19.20
|
Required
a. Compute the predetermined overhead rate under the current method, and 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:
|
Estimated Overhead
|
Expected Activity
|
|
Activity Cost Pool
|
Costs
|
Product C
|
Product C
|
Total
|
|
Machine setups
|
$ 13,570
|
100
|
130
|
230
|
|
Purchase orders
|
91,520
|
810
|
1,270
|
2,080
|
|
General factory
|
25,800
|
280
|
1,440
|
1,720
|
| |
$130,890
|
|
|
|
3. Determine the unit product cost of each product for the current period using the activity-based costing approach.