Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years, the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $512,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 14,000 units of the regular model. The flexible model requires 2.0 hours of direct labor time per unit, and the regular model requires 1.00 hours. Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible $115 $ 55 Rigid $ 70 $ 40 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. 1-b. Compute the unit product cost for one unit of each model. 2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Expected Activity Activity Cost Pool and Activity Measure Purchase orders (number of orders) Rework requests (number of requests) Product testing number of tests) Machine related machine-hours) Estimated Overhead cost $ 30,000 20,000 150,000 312,000 $512,000 Flexible 145 65 590 1,200 Rigid 455 335 910 2,700 Total 600 400 1,500 3,900 Compute the activity rate for each of the activity cost pools. 3-a. Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year. 3-b. Using activity-based costing, compute the unit product cost for one unit of each model. Reg 1A Reg 1B Req 2 Req Reg 3B Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. Predetermined overhead rate per DLH Reg 1A Reg 1B Reg 2 Req Req 3B Compute the unit product cost for one unit of each model. Unit Product Cost Flexible Rigid Reg 1A Reg 1B Reg 2 Reg Req 3B Compute the activity rate for each of the activity cost pools. Activity Cost Pool Purchase orders Rework requests Product testing Machine-related Activity Rate per order per request per test per MH Reg 1A Reg 1B Reg 2 Req Reg 3B Using activity-based costing, determine the total amount of overhead that would be assigned to each model for the year. Total Amount of Overhead Flexible Rigid Req 1A Reg 1B Reg 2 Req Req 3B Using activity-based costing, compute the unit product cost for one unit of each model. (Do not round intermediate calculations and round your answers to 2 decimal places.) Unit Product Cost Flexible Rigid
