Question
Larner Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates: Activity
Larner Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates:
Activity Cost Pool | Activity Rates | |
---|---|---|
Labor-related | $ 8.00 | per direct labor-hour |
Machine-related | $ 9.00 | per machine-hour |
Machine setups | $ 50.00 | per setup |
Production orders | $ 100.00 | per order |
Shipments | $ 180.00 | per shipment |
General factory | $ 9.00 | per direct labor-hour |
Cost and activity data have been supplied for the following products:
J78 | B52 | |
---|---|---|
Direct materials cost per unit | $ 4.50 | $ 45.00 |
Direct labor cost per unit | $ 4.75 | $ 10.00 |
Number of units produced per year | 4,000 | 500 |
Total Expected Activity | ||
---|---|---|
J78 | B52 | |
Direct labor-hours | 900 | 50 |
Machine-hours | 2,900 | 20 |
Machine setups | 4 | 4 |
Production orders | 8 | 4 |
Shipments | 12 | 4 |
Required:
Compute the unit product cost of each product listed above. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 45,000 units next year and Product L is expected to sell 9,000 units. A unit of either product requires 0.2 direct labor-hours.
The company's total manufacturing overhead for the year is expected to be $918,000.
Required:
1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product?
1-b. Compute the total amount of overhead cost that would be applied to each product.
2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $459,000 assigned to Product H and $459,000 assigned to Product L.
If this suggestion is followed, how much overhead cost per unit would be assigned to each product?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started