Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 1 hour of direct labor time for Product S. Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $958,396 in manufacturing overhead costs and produce 18,100 units of Product W and 72,400 units of Product S during the current year.

Unit cost for materials and direct labor are:

Product S Product W

Direct material $ 12 $ 34

Direct labor 16 13

Required: a-1. Compute the predetermined overhead rate under the current method of allocation.

a-2. Determine the unit product cost of each product for the current year.

b. The company's overhead costs can be attributed to four major activities.

These activities and the amount of overhead cost attributable to each for the current year are given below:

Total Activity Activity Cost Pool Total Cost Product S Product W

Total Machine setups required $ 411,680 1,690 1,630 3,320

Purchase orders issued 56,316 547 175 722

Machine-hours required 203,500 7,400 11,100 18,500

Maintenance requests issued 286,900 658 852 1,510 $ 958,396

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Predetermined overhead rate per DLH

Determine the unit product cost of each product for the current year. (Round your answers to 2 decimal places.) Product S Product W

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Round your answer to 2 decimal places.) Product S Product W

Answer 1

Answer:

Explanation:

1.

Direct labour hours work during the period:

Product S=72,400 units×1 hour=72,400 hours

Product W=18,100 units × 3 hours=54,300 hours

Total labour hours=126,700 hour

Predetermined overhead rate=$958,396/126,700  =7.56 per hour

2.

Unit product cost of S = Direct Material cost + Direct labour cost + Overhead = 12+16+7.56*1 = $35.56

Unit product cost of W = Direct Material cost + Direct labour cost + Overhead = 34+13+7.56*3 = $69.68