(Appendix 2A) Poma 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, R78S and N32Y, about which it has provided the following data:
The company's estimated total manufacturing overhead for the year is $1,427,040 and the company's estimated total direct labor-hours for the year is 24,000.
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:

-The unit product cost of product R78S under the company's traditional costing system is closest to:
A) $36.00
B) $59.83
C) $47.20
D) $59.78

Question

(Appendix 2A) Poma 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, R78S and N32Y, about which it has provided the following data:
  The company's estimated total manufacturing overhead for the year is $1,427,040 and the company's estimated total direct labor-hours for the year is 24,000.
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:
  
-The unit product cost of product R78S under the company's traditional costing system is closest to:
A) $36.00 
B) $59.83 
C) $47.20 
D) $59.78

Quizplus · Accepted Answer

Direct labor-hour calculation:
 11ea7761_1988_cc7d_81a5_f5db5254e889_TB2580_00 Predetermined overhead rate = $1,427,040 ÷ 24,000 direct labor-hours = $59.46 per direct labor-hour
Overhead applied to each unit of product R78S = $59.46 per direct labor-hour × 0.4 direct labor-hours per unit = $23.78 per unit
 11ea7761_1988_cc7e_81a5_cfebdb05476b_TB2580_00

(Appendix 2A) Poma Manufacturing Corporation Has a Traditional Costing System