a)Compute a predetermined overhead rate based on the information provided. Assum

Question

a)Compute a predetermined overhead rate based on the information provided. Assume the company applies overhead on the basis of direct labor hours

b)Compute the total product cost for both the deluxe and tourist models using the predetermined overhead rate you calculated in part (a).

c)Assume the company uses activity-based costing (ABC). Compute the activity rate (overhead rate)for each of the activities identified above.

d)Using the overhead activity rates computed in [c], determine overhead applied to each product using ABC

Explanation / Answer

a) A B C = AxB Units Produced DLH per Unit Total hour Delux Deck Chair 2000 5 10000 Tourist Deck Chair 10000 4 40000 Total Direct Labor Hour 50000 Total Manufacturing Overhead Cost per Year $ 800000 Manufacturing Overhead Cost Direct Labor hour(DPH) = Total Manufaturing Cost/Total Direct Labor our Used = $ 800000/50000 Hour = $ 16 Per Labour Hour b) A B C = AxB DLH per Unit DLH per Hour Total Overhead Per Unit Delux Deck Chair 5 16 80 Tourist Deck Chair 4 16 64 Total Direct Labor Hour 144 Computation of Total Product Cost Delux Deck Chair Tourist Deck Chair Direct Materials 25 17 Direct Labor 60 48 Prime Cost 85 65 Add : Manufacturing Overhead 80 64 Total Product Cost 165 129 c) Computation of the overhead rate under ABC A B C D E F= D+E G = C/F H = D x G I = E x G Consupmtion of Cost Driver Overhead under ABC Activity Category Cost Driver Estimated Overhead Cost Delux Tourist Total Activity Cost per Activity Delux Tourist Labor Relared Direct Labor Hours 80000 10000 40000 50000 1.60 16000.00 64000 Machine Setups Number of Srtups 150000 3000 2000 5000 30.00 90000.00 60000 Parts Administration Number of Parts 160000 50 30 80 2000.00 100000.00 60000 Production Orders Number of Orders 70000 100 300 400 175.00 17500.00 52500 Material Receipts Number of Receipts 90000 150 600 750 120.00 18000.00 72000 General Factory Machine Hours 250000 12000 28000 40000 6.25 75000.00 175000 Total Overhead to be allocated 800000 316500.00 483500.00 d) Overhead to be applied to each product Delux Tourist Total Total Overhead to be allocated (A) 316500.00 483500.00 800000.00 Units Produced (B) 2000 10000 12000 Overhead Rate Per Unit (C = A/B) 158.25 48.35 e) Computation of Total Product Cost Using ABC Delux Deck Chair Tourist Deck Chair Direct Materials 25 17 Direct Labor 60 48 Prime Cost 85 65 Add : Manufacturing Overhead 158.25 48.35 Total Product Cost 243.25 113.35

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