Rocky Mountain Corporation makes two types of hiking boots–Xactive and Pathbreaker. Data Concerning these two product lines appear below:
|
|
Xactive |
Pathbreaker |
|
Direct materials per unit |
$64.80 |
$51.00 |
|
Direct labor cost per unit |
$18.20 |
$13.00 |
|
Direct labor-hours per unit |
1.4 DLHs |
1.0 DLHs |
|
Estimated annual production and sales |
25,000 units |
75,000 units |
The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
|
Estimated total manufacturing overhead |
$2,200,000 |
|
Estimated total direct labor-hours |
110,000 DLHs |
Required:
1. Compute the predetermined overhead rate based on direct labor-hours. Using this rate and other data from the problem, determine the unit product cost of each product.
2. The company is considering replacing it conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools: Determine the activity rate for each of the four activity cost pools.
|
|
Estimated Overhead Cost |
Expected Activity |
||
|
Activities and Activity Measures |
Xactive |
Pathbreaker |
Total |
|
|
Supporting direct labor (direct labor-hours) |
$ 797,500 |
35,000 |
75,000 |
110,000 |
|
Batch setups (setups) |
680,000 |
250 |
150 |
400 |
|
Product sustaining (number of products) |
650,000 |
1 |
1 |
2 |
|
General factory (machine hours) |
72,500 |
2,500 |
7,500 |
10,000 |
|
Total manufacturing overhead cost |
$2,200,000 |
|
|
|
|
|
|
|
|
|
3. Using the activity rates and other data from the problem, determine the unit product cost of each product.
4. Explain why the conventional and activity-based cost assignments differ.
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