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Landcorp Products produces two types industrial component parts the X003 and the YOOS. Cost information of two products are available as follows: X003 Y005 Selling
Landcorp Products produces two types industrial component parts the X003 and the YOOS. Cost information of two products are available as follows: X003 Y005 Selling price per unit 182.00 128.70 Direct materials per unit 93.60 68.90 Direct labor per unit 31.20 15.60 Direct labor-hours per unit 2.0 DLHs 1.0 DLHS Estimated annual production 20,000 units 80,000 units Currently, company's costing system allocates manufacturing overhead to units of products using direct labor-hours as cost driver. The estimations of manufacturing overhead and direct labor-hours for the next year are shown below: Estimated total manufacturing overhead 2,574.000 Estimated total direct labor-hours 156,000 DLHS Required: a. Compute the unit costs for X003 and Y005 products under the company's traditional costing system. Comment on the profitability of the two products (7 marks) The managers of company are testing an activity-based costing system under which manufacturing overhead are traced to 4 activities: (the Other cost pool includes idle capacity that is not used by either products) Activities and Activity Measures Estimated Expected activity Overhead X003 YOOS Total Cost Supporting direct labor (direct labor-hours) 1,018,680 52.000 104.000 56,000 Batch setups (setups) 643,500 260 130 390 Product sustaining (number of products) 783, 120 1 2 Other 128,700 NA NA Total manufacturing overhead cost 2,574,000 b. Compute the overhead cost assigned to each unit of products and unit costs for the X003 and the Yoos products under the activity-based costing system (15 marks) c. Explain why the traditional and activity-based cost assignments differ (8 marks) d. Comment on the profitability of the two products using the new cost information (5 marks) e. Based on cost information provided in appplication of ABC, what would you suggest the management do to improve the financial performance of the company? (5 marks) 1 NA
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