DWD Manufacturing manufactures two products, A and B. Data relating to the two products follow:

Direct Material Direct Labour

2.0 hours @ $20/hour 1.0 hours @ $20/hour

Product A 5,000 units @ 2.0 DLH per unit = Product B 30,000 units @ 1.0 DLH per unit =

Total DLH @ Normal Capacity

40,000 DLH

Product A

Product B

$82.00 $40.00

$60.00 $20.00

Normal Capacity Production:

10,000 DLH 30,000 DLH

The company has always used direct labour hours as the base for applying factory overhead costs to products. Expected factory overhead at normal capacity is $2,000,000 per year.

Product A is more complex to manufacture than product B and it requires special computer controlled processing machinery for its manufacture. Because of this special processing, the company is considering adopting activity-based costing to achieve more accurate product costing.

The company has identified 4 separate activities as follows:

Activity Centre & (Cost Driver)

Expected Number of Events or Transactions Total

Traceable

Costs

Product A

Product B

1. Machine Setups (Number of setups) 2. Purchasing Costs (Purchase Orders) 3. Computer Processing (CPU Minutes)

4. General Factory (Labour Hours)

$390,000 150,000 360,000 1,100,000 2,000,000

300 1,000 24,000 40,000

100 400 24,000 10,000

200 600

- 30,000

Required: Complete the following using Excel Spreadsheets.

(a)If the company continues to use Direct Labour Hours as the base for applying overhead to products, calculate:

1. The pre-determined overhead rate per direct labour hour.
2. The cost to produce one unit of each product.

(b)Assume the company decides to adopt activity-based costing to apply overhead cost to products, calculate:

1. The overhead rate per unit of cost driver for each activity centre.
2. The amount of overhead cost to be applied to each product.
3. The cost to produce one unit of each product.
4. Recommend if adopting Activity based Costing would be feasible for DWD
5. Manufacturing.