Sunland Manufacturing produces two products in its Saratoga plant, balzene and galvene. Since it opened its doors in 1965, Sunland has been using a single manufacturing overhead pool to accumulate overhead costs. Overhead has been allocated to products based on direct labor hours. Until recently, Sunland was the sole producer of galvene in the country and was therefore able to dictate the selling price. However, last year Marcella Products began marketing a comparable product at $53 per unit-a price that is below Sunland's product cost. Sunland's market share of galvene has declined rapidly as a result. The company's managers must now decide whether to meet the competitive price or discontinue the product. Sunland's cost accountant has suggested that the company do an activity-based cost analysis before managers make the decision. The two main indirect costs of manufacturing balzene and galvene are power usage and setup costs. Most of the power usage occurs in the fabricating department; most of the setup costs are incurred in the assembly department. Setup costs are incurred predominantly in the production of balzene. The fabricating department has identified machine hours as the appropriate cost driver; the assembly department has identified setups as the appropriate cost driver. Direct labor rates are the same in both departments. The combined budget for manufacturing is as follows. Total Balzene Galvene 10,000 20 hours per unit $4 per unit 10,000 10 hours per unit $11.00 per unit $1,080,000 Number of units Direct labor Direct material Overhead Indirect labor Fringe benefits Indirect materials $50,000 18,000 31,000 180.000 Power Setup Quality assurance Other utilities Depreciation 90,000 25,000 20,000 30,000 The cost accountant has prepared the following estimates of overhead usage by the two departments: Indirect labor Fringe benefits Indirect materials Power Setup Quality assurance Other utilities Depreciation Fabricating 75% 70% $20.000 $100,650 $20,000 65% Assembly 25% 30% $11,000 $79,350 $70,000 35% 60% 40% 20% 80% Setups Activity Base Usage Balzene Galvene Machine Hours 4 MH/unit 6 MH/unit 1.000 250 Your answer is correct. Calculate the amount of overhead cost assigned to the Fabricating and Assembly activity cost pools using the cost accountant's estimates. Determine the overhead rate for each cost pool. (Round overhead rate answers to 3 decimal places, e.g. 15.215.) Fabricating Assembly Overhead cost assigned 243000 $ 201000 Overhead rate $ 2.43/MH $ 160.80 setup e Textbook and Media Assistance Used Solution Attempts: 3 of 3 used (c) x Your answer is incorrect. Calculate the unit costs of balzene and galvene using activity-based costing. (Round all rates and final answers to 2 decmial places, e.g. 15.25.) Balzene Galvene Cost per unit $ 24.3 20.1
