Tacoma Tides Manufacturing produces a product that is available in both a flexible and a rigid model.

Since introduction of the flexible model, the company$$s profits have steadily declined and management

has become concerned about the accuracy of its costing system. Sales of the flexible model have been

increasing rapidly.

Overhead is applied to products on the basis of machine hours. At the beginning of the current year,

management estimated that $$600,000$ in overhead costs would be incurred and the company would

produce and sell $1,000$ units of the flexible model and $10,000$ units of the rigid model. The flexible model

requires $2\mathrm{.}0$ machine hours per unit, and the rigid model requires $1\mathrm{.}0$ hour of machine time. Direct

materials and direct labor costs per unit are given below:

Flexible Rigid

DM per unit $$110\mathrm{.}00$ $$80\mathrm{.}00$

DL per unit $$30\mathrm{.}00$ $$15\mathrm{.}00$

Required:

$1.$ Compute the predetermined overhead rate using machine hours as the basis for allocating

overhead costs to products. Compute the unit cost for one unit of each model.

$2.$ An intern has suggested that the company institute activity$-$based costing. Four activity cost pools

have been identified. The data for the cost pools is shown below:

Activity Cost Pool and Activity

Measure

Estimated

Overhead

Costs

Flexible Rigid Total

Purchase orders $($number of orders$)$ $$20,000100300400$

Rework requests $($number of requests$)10,00060140200$

Product testing $($number of tests$)210,0009001,2002,100$

Machine$-$related $($machine hours$)360,0002,00010,00012,000$

Compute the rate for each of the activity cost pools.

$3.$ Assume that actual activity is as expected for the year.

a$.$ Determine the total overhead to be applied to each product for the year.

b$.$ Compute the unit product cost for one unit of each model.

$4.$ Identify a possible explanation for the company$$s declining profits.

Note: When uploading your answers to Canvas, you only need to include your answers for parts $1,2,$

and $3.$ We will discuss part $4$ in class.