Harrison company makes two products. management expects the manufacturing overhe

Question

Harrison company makes two products. management expects the manufacturing overhead costs for the year to be 150,00. The company is considering whether to use an activity based costing system or the traditional product costing system. The traditional cost system allocates the overhead on the basis of direct labor hours. under the activity based system, the overhead is allocated on the basis of engineering design time.

Rascon Parcel

Direct materials cost per unit 15.00 25.00

direct labor cost per unit 7.00 4.00

direct labor hours per unit .50 .30

number of units produced 22,000 82,000

engineering design time (hrs) 4,000 4,000

1. What is the unit product cost for Rascon using the proposed ABC system?

2. What is the unit product cost for Rascon using the traditional product costing system?

Need to know how to solve

Explanation / Answer

1. Under ABC cost system

manufacturing overhead costs allocated to Rascon = 150000*4000/8000 =$75000

manufacturing overhead costs allocated to Parcel = 150000*4000/8000 =$75000

unit product cost for Rascon = 15+7+75000/22000 = $25.41

2.

Undertraditional product costing system

Total labour hours for Rason = 0.5*22000 = 11000

Total labour hours for Parcel = 0.3*82000 = 24600

manufacturing overhead costs allocated to Rascon = 150000* 11000/(11000+24600)=$46348.31

unit product cost for Rascon = 15+7+ 46348.31/22000 = $24.11

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