Question 3(Total: 30 marks)

Tuggs Corporation manufactures two products, Racket and Table. Table, having been developed as an attempt to enter a market closely related to that of Racket, has been recently created. Of the two products Table is the more complex one thus requiring two and a half hours of direct labour time per unit to manufacture, compared to one hour of direct labour time for Racket. Table is produced on an automated production line.

On the basis of direct labour hours Overhead is currently assigned to the products. The company

estimated it would incur $364,000 in manufacturing overhead costs and produce 4,900 units of Table and 22,100 units of Racket during the current year. Unit costs for materials and direct labour are as follows:

Racket

Table

Direct materials

$9

$20

Direct labour

$7

$15

Required:

1.Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.

2.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:

Expected Activity

Activity Cost Pool

Estimated Overhead Cost

Racket

Table

Total

Machine setups required

$161,000

800

700

1,500

Purchase orders issued

$32,000

200

150

350

Machine hours required

$81,000

3,900

7,000

10,900

Maintenance requests issued

$90,000

310

510

820

Total

$364,000

Determine the unit product cost of each product for the current year using the data above and an activity-based costing approach.