Managareial Accounting 15th Edition By Garrison – Test Bank

 

 

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Sample Test

TB Chap 003 A

Appendix 03A

Activity-Based Absorption Costing

 

 

Multiple Choice Questions

 

Adams Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 900 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.5 direct labor-hours per unit. The total estimated overhead for next period is $67,522.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity as follows:

 

 

 

(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labor-hours.)

 

1.    The predetermined overhead rate under the traditional costing system is closest to:

 

 

103.          $103.88

 

13.  $13.83

 

54.  $54.86

 

8.    $8.91

 

 

2.    The overhead cost per unit of Product A under the traditional costing system is closest to:

 

 

21.  $21.94

 

3.    $3.56

 

5.    $5.53

 

41.  $41.55

 

 

3.    The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing system is closest to:

 

 

23.  $23.05

 

13.  $13.83

 

34.  $34.58

 

135.          $135.04

 

 

4.    The overhead cost per unit of Product A under the activity-based costing system is closest to:

 

 

67.  $67.66

 

21.  $21.94

 

48.  $48.23

 

41.  $41.55

 

 

Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,617,600 and the company’s estimated total direct labor-hours for the year is 24,000.

 

The company is considering using a form of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

5.    The manufacturing overhead that would be applied to a unit of product R58G under the company’s traditional costing system is closest to:

 

 

6.    $6.74

 

16.  $16.10

 

22.  $22.84

 

2.    $2.90

 

 

6.    The manufacturing overhead that would be applied to a unit of product R09O under the activity-based costing system is closest to:

 

 

113.          $113.46

 

255.          $255.00

 

141.          $141.54

 

17.  $17.28

 

 

Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total direct labor-hours for the year is 40,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

7.    The manufacturing overhead that would be applied to a unit of product P85G under the company’s traditional costing system is closest to:

 

 

89.  $89.67

 

45.  $45.28

 

44.  $44.39

 

23.  $23.20

 

 

8.    The manufacturing overhead that would be applied to a unit of product C43S under the activity-based costing system is closest to:

 

 

71.  $71.04

 

138.          $138.96

 

67.  $67.92

 

11.  $11.04

 

 

Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $2,541,760 and the company’s estimated total direct labor-hours for the year is 47,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

9.    The unit product cost of product U86Y under the company’s traditional costing system is closest to:

 

 

71.  $71.15

 

55.  $55.50

 

75.  $75.86

 

38.  $38.00

 

 

10.  The unit product cost of product M91F under the activity-based costing system is closest to:

 

 

95.  $95.20

 

121.          $121.57

 

216.          $216.77

 

197.          $197.95

 

 

Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,262,880 and the company’s estimated total direct labor-hours for the year is 36,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

11.  The unit product cost of product R21V under the company’s traditional costing system is closest to:

 

 

34.  $34.02

 

24.  $24.40

 

41.  $41.36

 

23.  $23.50

 

 

12.  The unit product cost of product D00B under the activity-based costing system is closest to:

 

 

111.          $111.81

 

133.          $133.82

 

81.  $81.20

 

30.  $30.61

 

 

 

 

Essay Questions

 

13.  Delaware Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W36M and U45D, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,746,000 and the company’s estimated total direct labor-hours for the year is 30,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

Required:

 

1.    Determine the manufacturing overhead cost per unit of each of the company’s two products under the traditional costing system.

2.    Determine the manufacturing overhead cost per unit of each of the company’s two products under activity-based costing system.

 

 

 

 

 

 

 

 

 

14.  Guinta Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, O48C and G94Z, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,102,500 and the company’s estimated total direct labor-hours for the year is 42,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the unit product cost of each of the company’s two products under the traditional costing system.

2.    Determine the unit product cost of each of the company’s two products under activity-based costing system.

 

 

 

 

 

 

 

 

 

15.  Hoffhines Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, E00X and E71U, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,021,200 and the company’s estimated total direct labor-hours for the year is 20,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the manufacturing overhead cost per unit of each of the company’s two products under the traditional costing system.

2.    Determine the manufacturing overhead cost per unit of each of the company’s two products under activity-based costing system.

 

 

 

 

 

 

 

 

 

16.  Riha Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Y47R and G13V, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,879,960 and the company’s estimated total direct labor-hours for the year is 43,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the unit product cost of each of the company’s two products under the traditional costing system.

2.    Determine the unit product cost of each of the company’s two products under activity-based costing system.

 

 

 

 

 

 

 

 

 

17.  Cabat 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:

 

 

 

Required:

 

1.    Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

2.    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:

 

 

 

Determine the unit product cost of each product for the current period using the activity-based costing approach. General factory overhead is allocated based on direct labor-hours.

 

 

 

 

 

 

 

 

Appendix 03A Activity-Based Absorption Costing Answer Key

 

 

 

Multiple Choice Questions

 

Adams Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 900 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.5 direct labor-hours per unit. The total estimated overhead for next period is $67,522.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools–Activity 1, Activity 2, and General Factory–with estimated overhead costs and expected activity as follows:

 

 

 

(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labor-hours.)

 

1.    The predetermined overhead rate under the traditional costing system is closest to:

 

 

103.          $103.88

 

13.  $13.83

 

54.  $54.86

 

8.    $8.91

Direct labor-hour calculation:

 

 

 

Predetermined overhead rate = Total estimated overhead ÷ Total estimated direct labor-hours

= $67,522 ÷ 650 direct labor-hours = $103.88 per direct labor-hour

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

2.    The overhead cost per unit of Product A under the traditional costing system is closest to:

 

 

21.  $21.94

 

3.    $3.56

 

5.    $5.53

 

41.  $41.55

Direct labor-hour calculation:

 

 

 

Predetermined overhead rate = Total estimated overhead ÷ Total estimated direct labor-hours

= $67,522 ÷ 650 direct labor-hours = $103.88 per direct labor-hour

 

Overhead cost per unit of A = $103.88 per direct labor-hour × 0.4 direct labor-hours per unit

= $41.55 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

3.    The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing system is closest to:

 

 

23.  $23.05

 

13.  $13.83

 

34.  $34.58

 

135.          $135.04

Activity rate for Activity 1 = $6,915 ÷ 500 = $13.83

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

4.    The overhead cost per unit of Product A under the activity-based costing system is closest to:

 

 

67.  $67.66

 

21.  $21.94

 

48.  $48.23

 

41.  $41.55

The activity rates for each activity cost pool are computed as follows:

 

 

 

The overhead cost charged to Product A is:

 

 

 

Overhead cost per unit of Product A = $33,832 ÷ 500 units = $67.66 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R58G and R09O, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,617,600 and the company’s estimated total direct labor-hours for the year is 24,000.

 

The company is considering using a form of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

5.    The manufacturing overhead that would be applied to a unit of product R58G under the company’s traditional costing system is closest to:

 

 

6.    $6.74

 

16.  $16.10

 

22.  $22.84

 

2.    $2.90

 

 

Predetermined overhead rate = $1,617,600 ÷ 24,000 direct labor-hours = $67.40 per direct labor-hour

Overhead applied to a unit of product T37C = $67.40 per direct labor-hours × 0.10 direct labor-hours per unit = $6.74 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

6.    The manufacturing overhead that would be applied to a unit of product R09O under the activity-based costing system is closest to:

 

 

113.          $113.46

 

255.          $255.00

 

141.          $141.54

 

17.  $17.28

The activity rates for each activity cost pool are computed as follows:

 

 

 

The overhead cost charged to Product R09O is:

 

 

 

Manufacturing overhead applied to a unit of product R09O = $1,134,600 ÷ 10,000 units = $113.46 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P85G and C43S, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $2,264,000 and the company’s estimated total direct labor-hours for the year is 40,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

7.    The manufacturing overhead that would be applied to a unit of product P85G under the company’s traditional costing system is closest to:

 

 

89.  $89.67

 

45.  $45.28

 

44.  $44.39

 

23.  $23.20

Direct labor-hour calculation:

 

 

 

Predetermined overhead rate = Total estimated overhead cost ÷ Total estimated direct labor-hours

= $2,264,000 ÷ 40,000 direct labor-hours = $56.60 per direct labor-hour

Overhead applied to product P85G = $56.60 per direct labor-hour × 0.80 direct labor-hours per unit

= $45.28 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

8.    The manufacturing overhead that would be applied to a unit of product C43S under the activity-based costing system is closest to:

 

 

71.  $71.04

 

138.          $138.96

 

67.  $67.92

 

11.  $11.04

The activity rates for each activity cost pool are computed as follows:

 

 

 

The overhead cost charged to Product C43S is:

 

 

 

Overhead applied to a unit of product C43S = $710,400 ÷ 10,000 units = $71.04 per unit

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $2,541,760 and the company’s estimated total direct labor-hours for the year is 47,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

9.    The unit product cost of product U86Y under the company’s traditional costing system is closest to:

 

 

71.  $71.15

 

55.  $55.50

 

75.  $75.86

 

38.  $38.00

Direct labor-hour calculation:

 

 

 

Predetermined overhead rate = $2,541,760 ÷ 47,000 direct labor-hours = $54.08 per direct labor-hour

Overhead per unit of product U86Y = $54.08 per direct labor-hour × 0.70 direct labor-hours per unit

= $37.86 per unit

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

10.  The unit product cost of product M91F under the activity-based costing system is closest to:

 

 

95.  $95.20

 

121.          $121.57

 

216.          $216.77

 

197.          $197.95

The activity rates for each activity cost pool are computed as follows:

 

 

 

The overhead cost charged to Product M91F is:

 

 

 

Overhead cost per unit of Product M91F = $1,215,720 ÷ 10,000 units = $121.57 per unit

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

Pacchiana Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R21V and D00B, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,262,880 and the company’s estimated total direct labor-hours for the year is 36,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

11.  The unit product cost of product R21V under the company’s traditional costing system is closest to:

 

 

34.  $34.02

 

24.  $24.40

 

41.  $41.36

 

23.  $23.50

Direct labor-hour calculation:

 

 

 

Predetermined overhead rate = $1,262,880 ÷ 36,000 direct labor-hours = $35.08 per direct labor-hour

Overhead applied to each unit of product R21V = $35.08 per direct labor-hour × 0.3 direct labor-hours per unit = $10.52 per unit

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

12.  The unit product cost of product D00B under the activity-based costing system is closest to:

 

 

111.          $111.81

 

133.          $133.82

 

81.  $81.20

 

30.  $30.61

The activity rates for each activity cost pool are computed as follows:

 

 

 

The overhead cost charged to Product D00B is:

 

 

 

Overhead per unit of Product D00B = $459,180 ÷ 15,000 units = $30.61 per unit

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

 

Essay Questions

 

13.  Delaware Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, W36M and U45D, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,746,000 and the company’s estimated total direct labor-hours for the year is 30,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

 

 

Required:

 

1.    Determine the manufacturing overhead cost per unit of each of the company’s two products under the traditional costing system.

2.    Determine the manufacturing overhead cost per unit of each of the company’s two products under activity-based costing system.

 

 

1.    Traditional Manufacturing Overhead Costs

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $1,746,000 ÷ 30,000 DLHs = $58.20 per DLH

 

 

 

1.    ABC Manufacturing Overhead Costs

 

 

 

Overhead cost for W36M

 

 

 

Overhead cost for U45D

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

14.  Guinta Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, O48C and G94Z, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,102,500 and the company’s estimated total direct labor-hours for the year is 42,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the unit product cost of each of the company’s two products under the traditional costing system.

2.    Determine the unit product cost of each of the company’s two products under activity-based costing system.

 

 

1.    Traditional Unit Product Costs

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $1,102,500 ÷ 42,000 DLHs = $26.25 per DLH

 

 

 

1.    ABC Unit Product Costs

 

 

 

Overhead cost for O48C

 

 

 

Overhead cost for G94Z

 

 

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

15.  Hoffhines Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, E00X and E71U, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,021,200 and the company’s estimated total direct labor-hours for the year is 20,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the manufacturing overhead cost per unit of each of the company’s two products under the traditional costing system.

2.    Determine the manufacturing overhead cost per unit of each of the company’s two products under activity-based costing system.

 

 

1.    Traditional Manufacturing Overhead Costs

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $1,021,200 ÷ 20,000 DLHs = $51.06 per DLH

 

 

 

1.    ABC Manufacturing Overhead Costs

 

 

 

Overhead cost for E00X

 

 

 

Overhead cost for E71U

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

16.  Riha Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Y47R and G13V, about which it has provided the following data:

 

 

 

The company’s estimated total manufacturing overhead for the year is $1,879,960 and the company’s estimated total direct labor-hours for the year is 43,000.

 

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

 

 

 

Required:

 

1.    Determine the unit product cost of each of the company’s two products under the traditional costing system.

2.    Determine the unit product cost of each of the company’s two products under activity-based costing system.

 

 

1.    Traditional Unit Product Costs

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $1,879,960 ÷ 43,000 DLHs = $43.72 per DLH

 

 

 

1.    ABC Unit Product Costs

 

 

 

Overhead cost for Y47R

 

 

 

Overhead cost for G13V

 

 

 

 

 

AACSB: Analytic

AICPA BB: Critical Thinking

AICPA FN: Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 03A-08 Use activity-based absorption costing to compute unit product costs.

 

 

17.  Cabat 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:

 

 

 

Required:

 

1.    Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

2.    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:

 

 

 

Determine the unit product cost of each product for the current period using the activity-based costing approach. General factory overhead is allocated based on direct labor-hours.

 

 

1.    The expected total direct labor-hours during the period are computed as follows:

 

 

 

Using these hours as a base, the predetermined overhead using direct labor-hours would be:

 

Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total direct labor-hours

= $177,910 ÷ 6,960 DLHs = $25.56 per DLH

 

Using this overhead rate, the unit product costs are: