Question
Precision Manufacturing Incorporated (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 50,000 units of EX300 and 11,500
Precision Manufacturing Incorporated (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 50,000 units of EX300 and 11,500 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials Direct labor EX300 $ 356,325 TX500 $ 110,000 $ 152,550 $ 37,500 Total $ 508,875 $ 147,500 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Manufacturing Overhead $ 144,375 Setups (setup hours) Product-level (number of products) 67,500 75,750 EX300 80,000 25 1 Activity TX500 57,500 200 1 Total 137,500 225 2 General factory (direct labor dollars) 36,875 $ 110,000 $ 37,500 $ 147,500 Total manufacturing overhead cost $ 324,500 Required: 1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system. 1-b. Using the plantwide rate, compute the unit product cost for each product. 2-a. Compute the activity rate for each activity cost pool. 2-b. Using the activity rates, compute the unit product cost for each product.
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