manufactures and sells two products: Product X0 and Product W7. Data concerning
ID: 2342961 • Letter: M
Question
manufactures and sells two products: Product X0 and Product W7. 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 $20.60 per DLH. The direct materials cost per unit is $145.50 for Product X0 and $127 for Product W7.
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 W7 is true? (Round your intermediate calculations to 2 decimal places.)
Multiple Choice
The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $199.81.
The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $37.72.
The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $37.72.
The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $199.81.
Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product X0 1,000 5 5,000 Product W7 410 3 1,230 Total direct labor-hours 6,230Explanation / Answer
Answer
A
Total Overhead cost
$ 533,800.00
B
Total direct labor hours
6,230
C = A/B
Overhead cost per DLHs
$ 85.68
D = C x 1230 DLHs
Allocated to W7
$ 105,386.40
Estimated
Expected Activity
Activity Cost Pools
Activity Measures
Overhead Cost
Product X0
Product W7
Total
Activity Rates
Labor-related
DLHs
$
273,078
5,000
1,230
6,230
$ 43.83
Production orders
orders
19,048
510
710
1,220
$ 15.61
Order size
MHs
241,674
4,010
4,110
8,120
$ 29.76
Activity Rates
W7 Activities
W7 Overhead cost
Labor-related
$ 43.83
1,230
$ 53,910.90
Production orders
$ 15.61
710
$ 11,083.10
Order size
$ 29.76
4,110
$ 122,313.60
Total Overhead cost allocated
$ 187,307.60
Total
Per unit
Cost allocated under Traditional Method
$ 105,386.40
$ 257.04
Cost allocated under ABC
$ 187,307.60
$ 456.85
Difference
$ 81,921.20
$ 199.81
--Hence, correct answer = Option #4: The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $199.81
A
Total Overhead cost
$ 533,800.00
B
Total direct labor hours
6,230
C = A/B
Overhead cost per DLHs
$ 85.68
D = C x 1230 DLHs
Allocated to W7
$ 105,386.40
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