Hewett, Inc., manufactures and sells two products: Product E7 and Product U7. 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 $29.50 per DLH. The direct materials cost per unit is $164.10 for Product E7 and $289.50 for Product U7. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product U7 would be closest to:
A)$751.92 per unit
B)$667.68 per unit
C)$301.84 per unit
D)$353.60 per unit

Question

Hewett, Inc., manufactures and sells two products: Product E7 and Product U7. 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 $29.50 per DLH. The direct materials cost per unit is $164.10 for Product E7 and $289.50 for Product U7. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product U7 would be closest to:
A)$751.92 per unit 
B)$667.68 per unit 
C)$301.84 per unit 
D)$353.60 per unit

Quizplus · Accepted Answer

Using the traditional costing method, the overhead rate is calculated as follows:

Total Overhead / Total Direct Labor Hours =  $421,200 / 14,200 = $29.66 per DLH

Product U7 requires 3.5 DLHs per unit:

Overhead per unit of Product U7 = $29.66 x 3.5 = $103.81

Total cost per unit of Product U7 = (Direct Materials + Direct Labor + Overhead) = ($289.50 + $103.81 + $26.72) = $420.03

Therefore, the closest option is $751.92 - $420.03 = $331.89, which is not one of the answer choices. The closest answer choice is A) $751.92, which is obtained as follows:

Direct Materials + Direct Labor + Overhead = ($289.50 + $103.81 + $358.61) = $751.92