Question 3

Carolina Industries manufactures two products, Product C and Product D. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below:

Required:

a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

b) The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Determine the overhead rates for each activity centre and the unit product cost of each product for the current period using the activity-based costing approach.