Question

Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, VIP and Kommander, about which it has provided the following data: VIP Kommander Direct materials per unit $ 27.50 $ 62.10 Direct labor per unit $ 15.60 $ 52.00 Direct labor-hours per unit 0.60 2.00 Annual production 40,000 15,000 The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Assembling products (DLHs) $ 918,000 Preparing batches (batches) 397,440 Product support (product variations) 1,134,000 Total $ 2,449,440 Expected Activity VIP Kommander Total DLHs 24,000 30,000 54,000 Batches 1,458 1,026 2,484 Product variations 2,592 1,188 3,780 Unit overhead cost of Product Short under the activity-based costing system is closest to:

a. $204.82.
b. $68.70.
c. $182.80.
d. $114.10.

Answer 1

Total DLHs 24,000 30,000 54,000 Batches 1,458 1,026 2,484 Product variations 2,592 1,188 3,780 Unit overhead cost of Product Short under the activity-based costing system is closest to:

b. $68.70.

Explanation:

• Activity Measures Estimated Overhead Cost Assembling products (DLHs) $ 918,000 Preparing batches (batches) 397,440 Product support (product variations) 1,134,000 Total $ 2,449,440 Expected Activity VIP Kommander Total DLHs 24,000 30,000 54,000 Batches 1,458 1,026 2,484 Product variations 2,592 1,188 3,780 Unit overhead cost of Product Short under the activity-based costing system is closest to:

• b. $68.70.
• Assembling products = $ 918,000
• Company's estimated total direct labor-hours for the year is 54,000.
• Therefore, $\frac{918,000}{54,000.}$× 3000= 510,000
• Preparing batches (batches) = 397,440
• Therefore, $\frac{397,440}{2484}$×1026= 164160
• Product support (product variations) = 1,134,000
• Therefore, $\frac{ 1,134,000}{3780}$× 1188 = 356400
• Total overhead costs = 1030560
• Unit overhead cost = $\frac{total overhead costs}{ number of units}$  = $\frac{1030560}{15000}$ = 68.70