Exercise $4-10($Algo$)$ Contrasting ABC and Conventional Product Costs $[$LO$4-2,$ LO$4-3,$ LO$4-4]$

Rocky Mountain Corporation makes two types of hiking boots$$Xactive and Pathbreaker. Data concerning these two product lines appear below:

Xactive Pathbreaker

Direct materials per unit $ $65\mathrm{.}80$ $ $52\mathrm{.}00$

Direct labor cost per unit $ $19\mathrm{.}20$ $ $14\mathrm{.}00$

Direct labor$-$hours per unit $1\mathrm{.}4$ DLHs $1$ DLHs

Estimated annual production and sales $35,000$ units $85,000$ units

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor$-$hours. Data concerning manufacturing overhead and direct labor$-$hours for the upcoming year appear below:

Estimated total manufacturing overhead $$2,814,000$

Estimated total direct labor$-$hours $134,000$ DLHs

Required:

$1-$a$.$ Compute the predetermined overhead rate based on direct labor$-$hours.

$1-$b$.$ Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

$2.$ The company is considering replacing its conventional costing system with an activity$-$based costing system that would assign its manufacturing overhead to the following four activity cost pools:

Activity Cost Pools and $($Activity Measures$)$ Estimated Overhead Cost Expected Activity

Xactive Pathbreaker Total

Supporting direct labor $($direct labor$-$hours$)$ $ $1,038,50049,00085,000134,000$

Batch setups $($setups$)1,100,000300200500$

Product sustaining $($number of products$)582,500112$

General factory $($machine$-$hours$)93,0003,5008,50012,000$

Total manufacturing overhead cost $ $2,814,000$

Determine the activity rate for each of the four activity cost pools.

$3.$ Using the activity rates and other data from the problem, determine the unit product cost of each product.