4-15 (Algo) Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4] Marine, Incorporated, manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since Introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $870,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 12,500 units of the regular model. The flexible model requires 3.0 hours of direct labor time per unit, and the regular model requires 1.50 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Required: Flexible $ 110 $ 25 Rigid $ 85 $ 15 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Estimated Expected Activity Overhead Cost Flexible Rigid $ 28,500 105 Total 465 570 18,500 65 305 370 160,000 750 8501 1,600 663,000 1,300 4,225 5,525 $ 870,000 Compute the activity rate for each of the activity cost pools. C Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing (number of tests) Machine related (machine-hours) Overhead Cost Flexible $ 28,500 18,500 160,000 Rigid Total 105 465 570 65 305 370 750 850 1,600 663,000 1,300 4,225 5,525 $ 870,000 Compute the activity rate for each of the activity cost pools. 3-a. Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year. 3-b. Using activity-based costing, compute the unit product cost for one unit of each model. Complete this question by entering your answers in the tabs below. Req 1A Req 18 Req 2 Req 3A Req 3B Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. Predetermined overhead rate $ 40 per DLH Req 18 >