Lillich, Inc., manufactures and sells two products: Product U6 and Product R5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below: The direct labor rate is $27.10 per DLH.The direct materials cost per unit for each product is given below: The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Which of the following statements concerning the unit product cost of Product U6 is true?
A)The unit product cost of Product U6 under traditional costing is greater than its unit product under activity-based costing by $389.58.
B)The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $389.58.
C)The unit product cost of Product U6 under traditional costing is greater than its unit product under activity-based costing by $1.33.
D)The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $1.33.

Question

Lillich, Inc., manufactures and sells two products: Product U6 and Product R5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below:  The direct labor rate is $27.10 per DLH.The direct materials cost per unit for each product is given below:  The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  Which of the following statements concerning the unit product cost of Product U6 is true?
A)The unit product cost of Product U6 under traditional costing is greater than its unit product under activity-based costing by $389.58. 
B)The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $389.58. 
C)The unit product cost of Product U6 under traditional costing is greater than its unit product under activity-based costing by $1.33. 
D)The unit product cost of Product U6 under traditional costing is less than its unit product cost under activity-based costing by $1.33.

Quizplus · Accepted Answer

Predetermined overhead rate = Estimated total overhead ÷ Total direct labor-hours
= $1,272,586 ÷ 9,800 DLHs = $129.86 per DLH (rounded)
Computation of traditional unit product cost: 11ea7998_5e99_d160_911b_91315a21a8ba_TB2627_00_TB2627_00 Computation of activity rates: 11ea7998_5e99_f871_911b_73d3c91cb205_TB2627_00_TB2627_00 Computation of the overhead cost per unit under activity-based costing. 11ea7998_5e99_f872_911b_ffd781eddf8f_TB2627_00_TB2627_00 Computation of unit product cost under activity-based costing. 11ea7998_5e9a_1f83_911b_d5394192b1d4_TB2627_00_TB2627_00 The difference in unit product costs is: 11ea7998_5e9a_4694_911b_cf94c97a372c_TB2627_00_TB2627_00 The unit product cost of Product U6 under traditional costing is greater than its unit product under activity-based costing by $1.33.