Question
Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Data concerning the expected production of each product and the expected total direct
Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:
Expected Production | Direct Labor-Hours Per Unit | Total Direct Labor-Hours | |
Product R4 | 800 | 6.0 | 4,800 |
Product N4 | 300 | 3.0 | 900 |
Total direct labor-hours | 5,700 |
The direct labor rate is $24.70 per DLH. The direct materials cost per unit for each product is given below:
Direct Materials Cost per Unit | |
Product R4 | $202.10 |
Product N4 | $289.90 |
The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:
Estimated | Expected Activity | ||||
Activity Cost Pools | Activity Measures | Overhead Cost | Product R4 | Product N4 | Total |
Labor-related | DLHs | $86,811 | 4,800 | 900 | 5,700 |
Machine setups | setups | 29,000 | 400 | 600 | 1,000 |
General factory | MHs | 122,520 | 3,100 | 2,900 | 6,000 |
$238,331 |
If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product R4 would be closest to:
$91.38 per unit
$122.52 per unit
$174.00 per unit
$250.86 per unit
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