Question
ComTech, Inc. manufactures 2 types of minicomputers - CT100 and CT200, and applies overhead costs on the basis of direct labour hours. The anticipated overhead
ComTech, Inc. manufactures 2 types of minicomputers - CT100 and CT200, and applies
overhead costs on the basis of direct labour hours. The anticipated overhead is $710,000.
Information about the company's products follows.
CT100 CT200
Estimated production volume 2,500 3,125
Direct material per unit $30 $45
Direct labor per unit ($15/hr) $45 $60
Applied overhead ?
ComTech's overhead of $710,000 can be identified with 3 major activities: order
processing ($120,000), machine processing ($500,000), and product inspection ($90,000).
These activities are driven by the number of orders processed, machine hours worked, and
inspection hours, respectively. Data relevant to these activities follows.
CT100 CT200
Orders processed ? ?
Machine hours worked per unit 9.20 8.64
Inspection hours 4,000 11,000
While the number of orders processed is not known, management has informed you that it
costs around $200 to process an order and the ratios of orders processed for CT100 and
CT200 are (7/12) and (5/12) respectively. Management is very concerned about declining
profitability despite a healthy increase in sales volume.
Required:
1. Assuming use of direct labour hours to apply overhead to production, compute the unit
manufacturing costs of the CT100 and CT200 products if the expected manufacturing
volume is attained.
2. Assuming use of activity-based costing, compute the unit manufacturing costs of the
CT100 and CT200 products if the expected manufacturing volume is attained.
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