Question
1.Truax manufactures and sells two products: Product V9 and Product M6. Data concerning the expected production...
1.Truax manufactures and sells two products: Product V9 and Product M6. 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 V9 | 380 | 9.8 | 3,724 |
| Product M6 | 480 | 6.8 | 3,264 |
| Total direct labor-hours | 6,988 | ||
The direct labor rate is $25.60 per DLH. The direct materials cost per unit for each product is given below:
| Direct Materials Cost per Unit | |
| Product V9 | $277.60 |
| Product M6 | $170.80 |
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 V9 | Product M6 | Total | ||||
| Labor-related | DLHs | $ | 96,656 | 3,724 | 3,264 | 6,988 | |||
| Product testing | Tests | 71,208 | 720 | 960 | 1,680 | ||||
| Order size | MHs | 388,000 | 4,300 | 3,920 | 8,220 | ||||
| $ | 555,864 | ||||||||
What is the cost of each product under traditional method of applying overhead (using a plant-wide overhead rate)? (Show work to support your answers.)
What is the cost of each product using activity-based costing overhead rates? (Show work to support your answers.)
Answers
Solution 1:
Predetermined overhead rate = Estimated overhead / Estimated DLH = $555,864 / 6988 = $79.55 per labor hour
Computation of unit product cost - Truax
(Traditional costing)Particulars Product V9 Product M6 Direct material $277.60 $170.80 Direct labor $250.88 $174.08 Manufacturing overhead $779.59 $540.94 Unit Product Cost $1,308.07 $885.82 Solution 2:
Determination of overhead rate and allocated overheads to product lines and overheaed cost per unit- Activity based costing Activity Estimated Overhead Cost Usage of Activity Base Activity Rate Product V9 Product M6 Usage Allocated Costs Usage Allocated Costs Labor related $96,656.00 6988 $13.83 3724 $51,509 3264 $45,147 Product testing $71,208.00 1680 $42.39 720 $30,518 960 $40,690 Order size $388,000.00 8220 $47.20 4300 $202,968 3920 $185,032 Total $555,864.00 $284,995 $270,869 Nos of units 380 480 Overhead cost per unit $749.99 $564.31
Computation of unit product cost - Truax
(Activity Based costing)Particulars Deluxe Standard Direct material $277.60 $170.80 Direct labor $250.88 $174.08 Manufacturing overhead $749.99 $564.31 Unit Product Cost $1,278.47 $909.19
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