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: The unit product cost of Product E7 under the company's traditional costing method in which all overhead is allocated on the basis of direct labor-hours is closest to:
A)$1,028.53 per unit
B)$634.71 per unit
C)$680.00 per unit
D)$954.82 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:  The unit product cost of Product E7 under the company's traditional costing method in which all overhead is allocated on the basis of direct labor-hours is closest to:
A)$1,028.53 per unit 
B)$634.71 per unit 
C)$680.00 per unit 
D)$954.82 per unit

Quizplus · Accepted Answer

Under the traditional costing method, the total overhead cost is allocated based on the direct labor-hours. Thus, we need to first calculate the predetermined overhead rate:

Predetermined overhead rate = Estimated total overhead cost / Estimated total direct labor-hours
Predetermined overhead rate = ($1,134,120 + $507,240) / 41,200
Predetermined overhead rate = $34.50 per DLH

Next, we can calculate the total cost per unit of Product E7:

Total cost per unit = Direct materials cost + Direct labor cost + Manufacturing overhead cost
Total cost per unit = $164.10 + ($86.50 × 6.2) + ($34.50 × 6.2)
Total cost per unit = $1,028.53

Therefore, the unit product cost of Product E7 under the company's traditional costing method is $1,028.53 per unit, which is closest to choice letter A.