Tulip Company produces two products. T and U. The indirect labor costs include t

Question

Tulip Company produces two products. T and U. The indirect labor costs include the following two items: The following activity-base usage and unit production information is available for the two products: Determine the single plantwide factory overhead rate, using direct labor hours as the activity base. Determine the factory overhead cost per unit for Products T and U, using the single plantwide factory overhead rate. Determine the activity rate for plant supervision and setup labor, assuming that the activity base for supervision is direct labor hours and the activity base for setup is number of setups. Determine the factory overhead cost per unit for Products T and U, using activity-based costing. Why is the factory overhead cost per unit different for the two products under the two methods?

Explanation / Answer

Total indirect labor $1,000,000 Dirct labor hours       50,000.00 a single plantwide factory overhead rate 20 (1000000/50000) Units overhead rate Overhead cost per unit b Product T 900 20 $18,000.00 Product U 1100 20 $22,000.00 cost activity Activity rate c Plant supervision $700,000.00               50,000.00 $14.00 Setup Labor $300,000.00                     400.00 $750.00 Setups Activity rate Total setup cost Direct labor hours Activity rate Total labor cost Total cost Unit cost per unit d Product T 200 $750.00 $150,000.00 20000 750 15000000 $15,150,000.00 900 $16,833.33 Product U 200 $750.00 $150,000.00 30000 750 22500000 $22,650,000.00 1100 $20,590.91 e the cost per unit under two method is different because the activity based costing cosiders different activities to absorb overhead cost unlike the single overhead rate.

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