Beautifully Fabulous Beauty Salon manufactures two products, Beauty Gloss and Cocooning Spray. Beauty Gloss is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Cocooning Spray. Beauty Gloss is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Cocooning Spray. Beauty Gloss is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Beauty Gloss and 40,000 units of Cocooning Spray during the current year. Unit costs for materials and labor are: Cocooning Spray Beauty Gloss Direct material $11 $24 Direct labor 6 12 LENGTH: 2-3 pages typed and double spaced The following items will be assessed in particular: 1. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. 2. The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below: Estimated Expected Activity Overhead Cocooning Beauty Activity Cost Pool Costs Spray Gloss Total Machine setups required $204,000 800 1,600 2,400 Purchase orders issued 43,500 500 100 600 Machine-hours required 105,000 7,000 10,500 17,500 Maintenance requests issued 157,000 650 850 1,500 $510,000 1. Using the data above, determine the unit product cost of each product for the current year. 2. What items of overhead cost make Beauty Gloss so costly to produce according to the activity-based costing system? What influence might the activity-based costing data have on management's opinions regarding the profitability of Beauty Gloss?

Case assignment expectations: Beautifully Fabulous Beauty Salon manufactures two products, Beauty Gloss and Cocooning Spray. Beauty Gloss is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Cocooning Spray. Beauty Gloss is the more complex of the two products, requiring 2.0 hours of direct labor time per unit to manufacture compared to 1.0 hour of direct labor time for Cocooning Spray. Beauty Gloss is produced on an automated production line. Overhead currently is applied to the products on the basis of direct labor hours. The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Beauty Gloss and 40,000 units of Cocooning Spray during the current year. Unit costs for materials and labor are: Cocooning Spray $11 6 Direct material Direct labor Beauty Gloss $24 12 LENGTH: 2-3 pages typed and double spaced The following items will be assessed in particular: Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. 1. The company is considering the use of activitybased costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below: 2. Estimated Activity Cost Pool Machine setups required Purchase orders issued Machine-hours required Maintenance requests issued Expected Activity Overhead Cocooning Beauty Costs Spray Gloss $204,000 800 1,600 43,500 500 100 105,000 7,000 10,500 157,000 650 850 $510,000 Total 2,400 600 17,500 1,500 Using the data above, determine the unit product cost of each product for the current year. 1. What items of overhead cost make Beauty Gloss so costly to produce according to the activitybased costing system? What influence might the activity based costing data have on management's opinions regarding the profitability of Beauty Gloss? 2