Cabigas Corporation manufactures two products,Product C and Product D.The company estimated it would incur $167,140 in manufacturing overhead costs during the current period.Overhead currently is applied to the products on the basis of direct labor-hours.Data concerning the current period's operations appear below:
Required:
a.Compute the predetermined overhead rate under the current method,and determine the unit product cost of each product for the current year.
b.The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours.The activity-based costing system would use three activity cost pools.Data relating to these activities for the current period are given below:
Determine the unit product cost of each product for the current period using the activity-based costing approach.General factory overhead is allocated based on direct labor-hours.

Question

Cabigas Corporation manufactures two products,Product C and Product D.The company estimated it would incur $167,140 in manufacturing overhead costs during the current period.Overhead currently is applied to the products on the basis of direct labor-hours.Data concerning the current period's operations appear below:
  Required:
a.Compute the predetermined overhead rate under the current method,and determine the unit product cost of each product for the current year.
b.The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours.The activity-based costing system would use three activity cost pools.Data relating to these activities for the current period are given below:
  Determine the unit product cost of each product for the current period using the activity-based costing approach.General factory overhead is allocated based on direct labor-hours.

Quizplus · Accepted Answer

The Answer is a.The expected total direct labor-hours during the period are computed as follows:

a.The expected total direct labor-hours during the period are computed as follows: Using these hours as a base,the predetermined overhead using direct labor-hours would be: Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total direct labor-hours = $167,140 ÷ 6,160 DLHs = $27.13 per DLH Using this overhead rate,the unit product costs are: b.The activity rates for each activity cost pool are as follows: The overhead cost charged to Product C is: The overhead cost charged to Product D is: Overhead cost per unit: Product C: $86,860 ÷ 2,000 units = $43.43 per unit. Product D: $80,280 ÷ 2,700 units = $29.73 per unit. Using activity based costing,the unit product cost of each product would be:

Using these hours as a base,the predetermined overhead using direct labor-hours would be:
Predetermined overhead rate = Estimated total overhead cost ÷ Estimated total direct labor-hours
= $167,140 ÷ 6,160 DLHs = $27.13 per DLH
Using this overhead rate,the unit product costs are:

b.The activity rates for each activity cost pool are as follows:

The overhead cost charged to Product C is:

The overhead cost charged to Product D is:

Overhead cost per unit:
Product C: $86,860 ÷ 2,000 units = $43.43 per unit.
Product D: $80,280 ÷ 2,700 units = $29.73 per unit.
Using activity based costing,the unit product cost of each product would be:

Cabigas Corporation Manufactures Two Products,Product C and Product D