Question 3:
Question 4
Required information Problem 4-16 Contrasting ABC and Conventional Product Costs (L04-2, LO4-3, LO4-4] [The following information applies to the questions displayed below.) For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.80 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.40 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: LEC 40 LEC 90 $24.00 $ 44.00 Direct materials Direct labor (0.40 hours and 0.80 hours @ $10.00 per hour) $ 4.00 $ 8.00 Management estimates that the company will incur $744,000 in manufacturing overhead costs during the current year and 60,000 units of the LEC 40 and 20,000 units of the LEC 90 will be produced and sold. Problem 4-16 Part 2 2. Management is considering using activity-based costing to assign manufacturing overhead cost to products. The activity-based costing system would have the following four activity cost pools: Estimated Overhead Cost $126,000 Activity Cost Pool Maintaining parts inventory Processing purchase orders Quality control Machine-related Activity Measure Number of part types Number of purchase orders Number of tests run Machine-hours 120,000 42,000 456,000 $744,000 Activity Measure Number of part types Number of purchase orders Number of tests run Machine-hours Expected Activity LEC 40 LEC 90 Total 400 650 1,050 1,400 600 2,000 700 1,400 2,100 4,000 2,000 6,000 Determine the activity rate for each of the four activity cost pools. (Round your answers to 2 decimal places.) Activity Rate per part type Activity Cost Pool Maintaining inventory Processing purchase orders Quality control Machine-related per order per test per MH Problem 4-16 Contrasting ABC and Conventional Product Costs (LO4-2, LO4-3, L04-4] [The following information applies to the questions displayed below.) For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.80 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.40 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: LEC 40 LEC 90 $24.00 $ 44.00 Direct materials Direct labor (0.40 hours and 0.80 hours @ $10.00 per hour) $ 4.00 $ 8.00 Management estimates that the company will incur $744,000 in manufacturing overhead costs during the current year and 60,000 units of the LEC 40 and 20,000 units of the LEC 90 will be produced and sold. Problem 4-16 Part 3 3. Using the activity rates you computed in part (2), do the following: a. Determine the per unit amount of manufacturing overhead cost that would be assigned to each product using the activity-based costing system. b. Compute the unit product cost of each product. Complete this question by entering your answers in the tabs below. Req Req 3B Using the activity rates you computed in part (2), determine the per unit amount of manufacturing overhead cost that would be assigned to each product using the activity- based costing system. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Show less Manufacturing overhead per unit of LEC 40 Manufacturing overhead per unit of LEC 90 Problem 4-16 Part 3 3. Using the activity rates you computed in part (2), do the following: a. Determine the per unit amount of manufacturing overhead cost that would be assigned to each product using the activity-based costing system. b. Compute the unit product cost of each product. Complete this question by entering your answers in the tabs below. Req Req 3B Using the activity rates you computed in part (2), compute the unit product cost of each product. (Do not round intermediate calculations. Round your final answers to 2 decimal places) Show less Unit product cost for LEC 40 Unit product cost for LEC 90
