Exercise 4-8 Computing ABC Product Costs [LO4-2, LO4-3]

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Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

	Direct Labor-Hours per unit	Annual Production
Rims	0.20	21,000 units
Posts	0.70	79,000 units

Additional information about the company follows:

1. Rims require $19 in direct materials per unit, and Posts require $15.
2. The direct labor wage rate is $15 per hour.
3. Rims are more complex to manufacture than Posts and they require special equipment.
4. The ABC system has the following activity cost pools:

		Estimated Activity
Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Rims	Posts	Total
Machine setups	Number of setups	$	34,760	110	90	200
Special processing	Machine-hours	$	136,670	1,000	0	1,000
General factory	Direct labor-hours	$	819,000	9,000	54,000	63,000

Exercise 4-8 Part 2

2. Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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	$	64.90		$	51.10
Direct labor cost per unit	$	18.30		$	13.10
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		26,000	units		76,000	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	$2,259,240
Estimated total direct labor-hours	112,400	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)	$	820,520			36,400			76,000		112,400
Batch setups (setups)		717,500			255			155		410
Product sustaining (number of products)		646,760			1			1		2
General factory (machine-hours)		74,460			2,600			7,600		10,200
Total manufacturing overhead cost	$	2,259,240

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.