Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]

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

	Xactive			Pathbreaker
Direct materials per unit	$	64.50		$	50.70
Direct labor cost per unit	$	17.90		$	12.70
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		22,000	units		72,000	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	$2,025,160
Estimated total direct labor-hours	102,800	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:

	Estimated Overhead Cost			Expected Activity
Activity Cost Pools and Activity Measures				Xactive			Pathbreaker			Total
Supporting direct labor (direct labor-hours)	$	729,880			30,800			72,000		102,800
Batch setups (setups)		573,500			235			135		370
Product sustaining (number of products)		655,040			1			1		2
General factory (machine-hours)		66,740			2,200			7,200		9,400
Total manufacturing overhead cost	$	2,025,160

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.