1. Using direct labor hours as the manufacturing overhead cost allocation base, do the

following:

a. Determine the plant wide predetermined overhead rate that will be used during the year.

Traditional Costing

Predetermined Overhead Rate = $2,200,000 (Total Overhead) / 50,000 hrs (direct Labor hrs)

Predetermined Overhead Rate = $44 per direct labor hr.

b. Determine the unit product cost of 1 pound of Kenya Dark coffee and 1 pound of Viet

Select copy.

Kenya Dark Viet Select

Total Cost per pound 5.72 4.12

2. Using the activity-based absorption costing approach, do the following:

a. Determine the total amount of manufacturing overhead cost assigned to Kenya

Dark coffee and to Viet Select coffee for the year.

Kenya Dark Viet Select

Total Overhead Cost 26,976 7,608

b. Using the data developed in (2a) above, compute the amount of manufacturing

overhead cost per pound of Kenya dark coffee in Viet Select coffee.

Kenya Dark Viet Select

Overhead cost per Pound 0.34 1.90

c. Determine the unit product cost of 1 pound of Kenya Dark coffee in 1 pound Viet

Select coffee.

Kenya Dark Viet Select

Total Cost per Unit 5.18 5.14

3. Write a brief memo to the president of JSI that explains what you found in (1) and (2)

above and that discusses the implications of using direct labor hours as the only manufacturing

overhead cost allocation base.

Answer to number 3?