Problem: Exercise 3-9 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4
ID: 2442626 • Letter: P
Question
Problem:Exercise 3-9 Contrast ABC and Conventional Product Costs [LO2, LO3, LO4]
Harrison Company makes two products and uses a conventional costing system in which a single plant-wide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:
Rascon Parcel
Direct materials cost per unit $ 13.00 $ 22.00
Direct labor cost per unit $ 6.00 $ 3.00
Direct labor-hours per unit 0.40 0.20
Number of units produced 20,000 80,000
These products are customized to some degree for specific customers.
Requirement 1:
The company's manufacturing overhead costs for the year are expected to be $576,000. Using the-company's conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Rascon Parcel
Unit product cost $_____ $____
Requirement 2:
Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:
Rascon Parcel Total
Engineering design time (in hours) 3,000 3,000 6,000
Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Rascon Parcel
Unit product cost $_____ $____
I am just confused with this problem overall and require help with step by step information. If someone could answer this problem correctly then I will award them lifesaver. thanks.
Explanation / Answer
Requirement 1:
The company's manufacturing overhead costs for the year are expected to be $576,000. Using the-company's conventional costing system, compute the unit product costs for the two products. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Rascon Parcel
Number of units produced 20,000 80,000
Direct labor-hours per unit 0.40 0.20
Total direct labor-hours 8,000 16,000
Total Manufacturing OH $576,000
Total direct labor-hours
(8,000 + 16,000) 24,000
Predetermined overhead rate
$576,000 / 24,000 $24.00 per DLH
Rascon Parcel
Direct Materials $13.00 $22.00
Direct labor $6.00 $3.00
Manufacturing OH applied
0.40 × $24.00 $9.60
0.20 × $24.00 $4.80
Unit Product Cost $28.60 $29.80
Requirement 2:
Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:
Rascon Parcel Total
Engineering design
time(in hours) 3,000 3,000 6,000
Compute the unit product costs for the two products using the proposed ABC system. (Do not round intermediate calculation. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)
Predetermined Overhead Rate
576,000 / 2 = $288,000 / 24,000 = $12.00 per DLH
Engineering Design = $288,000 / 6,000 = $48.00 per Design hour
Rascon Parcel
Direct Materials $13.00 $22.00
Direct labor $6.00 $3.00
Manufacturing OH applied
0.40 × $12.00 $4.80
0.20 × $12.00 $2.40
Design $7.201 $48.002
Unit Product Cost $28.60 $29.80
1Rascon 3,000 / 20,000 = 0.15 x $48.00 = $7.20
2Parcel 3,000 / 80,000 = 0.0375 x $48.00 = $1.80
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.