Question
Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an attempt to enter
Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K-7. Product L-15 is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hour of direct labor time for Product K-7. Product L-15 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 $1,140,940 in manufacturing overhead costs and produce 10,500 units of Product L-15 and 42,000 units of Product K- 7 during the current year.
Unit costs for materials and labor are: |
Product K-7 | Product L-15 | |||
Direct material | $ | 17 | $ | 34 |
Direct labor | $ | 8 | $ | 14 |
Required: |
a-1 | Compute the predetermined overhead rate under the current method of allocation and. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
Predetermined overhead rate | $ |
a-2 | Determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.) |
Unit Product Cost | |
Product K-7 | $ |
Product L-15 | $ |
b. | 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: |
Total Activity
Activity Cost Pools | Total Cost | Product K-7 | Product L-15 | Total | |
Machine setups required | $ | 652,210 | 1,510 | 2,260 | 3,770 |
Purchase orders issued | 51,975 | 531 | 162 | 693 | |
Machine-hours required | 112,140 | 7,900 | 10,790 | 18,690 | |
Maintenance requests issued | 324,615 | 737 | 878 | 1,615 | |
$ | 1,140,940 | ||||
Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.) |
Product K-7 | Product L-15 | |||
Direct materials | $ | $ | ||
Direct labour | ||||
Manufacturing overhead | ||||
Total unit product cost | $ | $ | ||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started