Q5. ABC Corporation manufactures two products, Product M and Product N. Product N is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product N. Product N is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product M. Product N is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labor-hours. The company estimated it would incur SAR 500,000 in manufacturing overhead costs and produce 10,000 units of Product N and 60,000 units of Product M during the current year. Unit cost for materials and direct labor are:

Product M Product N

Direct material SAR 10 SAR 24

Direct labor SAR 8 SAR 12

Required: a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Estimated

Overhead Expected Activity

Costs Product M Product N Total

Activity cost Pools

Machine setups required .. SAR 200,000 800 1,200 2,000

Purchase orders issued.. 43,500 500 100 600

Machine-hours required 104,000 3,000 10,000 13,000

Maintenance requests issued 152,500 860 1,140 2,000

SAR 500,000

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.