Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plant wide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below:
EX300 .............. TX500 .............. Total
Direct materials . . . . . . . . . . . . . . . . . . . $366,325 . . . . . . . . $162,550 . . . . . . . . $528,875
Direct labor. . . . . . . . . . . . . . . . . . . . . . . $120,000 . . . . . . . . $42,500 . . . . . . . . $162,500
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:

Required:
1. Compute the plant wide overhead rate that would be used in the company's conventional cost system. Using the plant wide rate, compute the unit product cost for each product.
2. Compute the activity rate for each activity cost pool. Using the activity rates, compute the unit product cost for each product.
3. Why do the conventional and activity-based cost assignments differ from one another?

Transcribed Image Text:

Activity TX500 62,500 Manufacturing Overhead Activity Cost Pool (and Activity Measure) EX300 Total $198,250 150,000 100,250 90,000 75 152,500 300 375 General factory (direct labor dollars) . 60,125 $120,000 $42,500 $162,500 . $508,625