For many years, Sinclair Graphic Design has provided design and digital-printing services for indoor banners. The nylon banners, which come in a standard size, are used for a variety of purposes, including trade shows, sporting events, and other promotional activities. Three years ago, the company introduced a second printing and production service for outdoor banners that has become increasingly popular. The outdoor banners are a more complex product than the indoor banners, requiring weatherproof vinyl materials and a different printing process to improve the visibility of the text and graphics content. Moreover, outdoor banners are printed in smaller production runs because of less frequent orders; the setup of the printing equipment takes longer, and, since higher durability is needed to withstand the elements, more quality inspections are needed. Under the traditional costing approach, overhead costs are assigned to the products on the basis of direct labour-hours. Despite the introduction of the new outdoor banners, profits have declined steadily over the past three years. Management is beginning to believe that the company's costing system may be at fault. Unit costs for materials and labour for the two products follow: Direct materials Direct labour ($22 per hour) Indoor banners $10.00 $ 22 Outdoor banners $ 27.20 $ 66 Management estimates that the company will incur $840,000 in overhead costs during the current year and that 14,000 indoor banners and 2,800 outdoor banners will be produced and sold. Required: 1-a. Compute the predetermined overhead rate assuming that the company continues to apply overhead cost to products on the basis of direct labour-hours. (Round your answer to 2 decimal places.) Predetermined overhead rate per direct labour hour 1-b. Using this rate and other data from the problem, determine the unit product cost of each product.(Round your answers to 2 decimal places.) Indoor banners Outdoor banners Unit product cost 2. Management is considering using ABC to apply manufacturing overhead costs to products for external financial reports. Some preliminary work has been done, and the data that have been collected are displayed below. Using these data, calculate the predetermined overhead rate for each activity cost pool identified below. (Round your answers to 2 decimal places.) Activity Measure Estimated Total Overhead Indoor Outdoor Costs Banners Banners Total Order processing (orders received) $ 210,000 700 700 1,400 Print setup (number of batches) 70,000 1,120 280 1,400 Artwork and graphic design (labour-hours) 490,000 9,800 9,800 19,600 Quality control (number of inspections) 70,000 560 1,120 Total overhead cost $840,000 560 Activity Center Order processing Print setup Graphic design Quality control Predetermined Overhead Rate per order per setup per hour per inspection 3. Using the predetermined manufacturing overhead rates that you computed in (2) above, do the following: a. Determine the total amount of manufacturing overhead cost that would be applied to each product using the ABC system. After these totals have been computed, determine the amount of overhead cost per unit of each product. Overhead Applied Indoor Outdoor Banners Banners Activity Cost Pool Order processing Print set-up Graphics design Quality control Total overhead cost Number of units produced Overhead cost per unit b. Compute the unit product cost of each product. (Round your answers to 2 decimal places.) Indoor Outdoor Unit product cost
