Question
Ellix Company manufactures two models of ultra-high fidelity speakersthe X200 model and the X99 model. Data regarding the two products follow: Product Direct Labor-Hours Annual
Ellix Company manufactures two models of ultra-high fidelity speakersthe X200 model and the X99 model. Data regarding the two products follow:
Product | Direct Labor-Hours | Annual Production | Total Direct Labor-Hours |
X200 | 0.3 DLHs per unit | 17,000 units | 5,100 DLHs |
X99 | 0.5 DLHs per unit | 42,000 units | 21,000 DLHs |
26,100 DLHs | |||
Additional information about the company follows:
Model X200 requires $32 in direct materials per unit, and model X99 requires $35.
The direct labor workers are paid $40 per hour.
The company has always used direct labor-hours as the allocation base for applying manufacturing overhead cost to products.
Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.
Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Estimated Total Activity | ||||||
Activity Cost Pool | Activity Measure | Estimated Total Cost | X200 | X99 | Total | |
Machine setups | Number of setups | $ | 201,000 | 120 | 180 | 300 |
Special processing | Machine-hours | 290,000 | 1,000 | 0 | 1,000 | |
General factory | Direct labor-hours | 783,000 | 5,100 | 21,000 | 26,100 | |
$ | 1,274,000 | |||||
Required:
1. Assume that the company continues to use direct labor-hours as the allocation base for applying overhead cost to products.
a. Compute the plantwide predetermined overhead rate.
b. Compute the unit product cost of each model.
2. Assume that the company decides to use activity-based absorption costing to apply overhead cost to products.
a. Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based approach.
b. Compute the unit product cost of each model.
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