Problem 1h. Activity-Based Costing (19 points)

On the separate sheet provided, which has been started to save you time, prepare for Small Manufacturing Company, in good form and without abbreviations or scratch outs, a computation of the estimated product cost per unit for the current period using the activity-based costing approach. You need to document your computations, using letters in the column headings as covered in class.

Small Manufacturing Company manufactures two products, Product X and Product Z. The company estimates it will incur $100,000 of manufacturing overhead for the current period (Calendar year 2025). Overhead currently is assigned to the products using direct labor hours. Data concerning the current period's operations under the traditional system are:

Product X Product Z

Estimated volume in units 400 1,500

Direct labor hours per unit 0.70 1.20

Direct materials cost per unit $24.75 $11.50

Direct labor cost per unit $11.25 $20.00

Manufacturing overhead cost per unit* $33.66 $57.70

* Using direct labor hours as the allocation base: 400 units x 0.7 direct labor hours per unit + 1,500 units x 1.2 direct labor hours per unit = 2,080 estimated direct labor hours; $100,000 estimated manufacturing overhead/2,080 direct labor hours (DLH) = $48.08 per DLH; $48.08 x 0.70 = $33.66 and $48.08 x 1.20 = $57.70.

In order to compute estimated cost under activity-based costing, the company has identified two activity cost pools, broken down the estimated overhead, and estimated activity levels as follows:

Estimated Estimated Activity _____

Activity Cost Pool Overhead Product X Product Z Total

Setup machines $ 40,000 500 400 900 setups

Prepare purchase orders 60,000 300 900 1,200 purchase orders

Total $100,000