Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct labor hours. Anticipated overhead and direct labor time for the upcoming accounting period are $1,600,000 and 25,000 hours, respectively. Information about the company's products follows. 

Regular'

Estimated production volume: 3,000 units

Direct materials cost: $28 per unit

Direct labor per unit: 3 hours at $15 per hour

         Deluxe'

Estimated production volume: 4,000 units

Direct materials cost: $42 per unit

Direct labor per unit: 4 hours at $15 per hour

Scott's overhead of $1,600,000 can be identified with three major activities: order processing ($250,000), machine processing ($1,200,000), and product inspection ($150,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow. 

Required:
A. Compute the application rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the expected manufacturing volume is attained.
C. How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional costing and applied overhead solely on the basis of direct labor hours? Which of the two products would be undercoated by thisprocedure? Overcosted?

Transcribed Image Text:

Orders Machine Hours Processed Wor ked 16,000 24.000 40.000 In spectionHours 4,000 Regular Deluxe Total 320 180 500 10.000