Question - Ellix Company manufactures two models of ultra-high fidelity speakers, the X200 model and the X99 model. Data regarding the two products follow:
Product Direct labor-hours Annual production Ttl. DL hrs
X200 1.8 DLHs per unit 5,000 units 9,000 DLHs
X99 0.9 DLHs per unit 30,000 units 27,000 DLHs
Additional information about the company follows:
A. Model X200 requires $72 in direct materials per unit, and Model X99 requires $50
B. The direct labor rate is $10 per hour
C. The company has always used direct labor hours as the base for applying manufacturing overhead costs to products.
D. Model X200 is more complex to manufacture than Model X99 and requires the use of special equipment.
E. Because of the special work required in (D) above, the company is considering the use of activity-based costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Activity Cost Pool Activity Measure Total Cost
Machine setups Number of setups $360,000
Special processing Machine hours 180,000
General factory Direct labor-hours 1,260,000
Expected Activity
Activity Measure Model X200 Model X99 Total
Number of setups 50 100 150
Machine hours 12,000 0 12,000
Direct labor-hours 9,000 27,000 36,000
Required:
1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
A. Compute the predetermined overhead rate
B. Compute the unit product cost of each model
2. Assume that the company decides to use activity-based costing to apply overhead costs to products.
A. Compute the activity rate for each cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based costing system
B. Compute the unit product cost of each model.