Ellix Company manufactures two models of ultra-high fidelity speakers, the X200

Question

Ellix Company manufactures two models of ultra-high fidelity speakers, the X200 model and the X99 model. Data regarding the two products follow:

The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.

Model X200 is more complex to manufacture than model X99 and requires the use of special equipment.

Because of the special work required in (d) above, the company is considering the use of activity-based absorption costing to apply manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

Estimated Total Activity

Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.

     

Compute the predetermined overhead rate. (Round "pre-determined overhead rate" to nearest dollar.)

Compute the unit product cost of each model. (Round "pre-determined overhead rate" to nearest dollar and round other intermediate calculations and final answers to 2 decimal places.)

  

Compute the activity rate for each activity cost pool and determine the amount of overhead cost that would be applied to each model using the activity-based approach. (Round "Overhead cost per unit" answers to 2 decimal places.)

Compute the unit product cost of each model. (Round intermediate calculations and final answers to 2 decimal places.)

Ellix Company manufactures two models of ultra-high fidelity speakers, the X200 model and the X99 model. Data regarding the two products follow:

Explanation / Answer

Answer:

1a. Calculation of predetermined overhead absorption rate;

1b. Calculation of Unit Product Cost;

Particulars                                                        X200                                    X99

Direct Material Cost per unit $ 43 $ 20                               

Direct Labor Cost per unit                                 $ 20 (0.5 x $ 40)                   $ 28 (0.70 x $ 40)

Manufacturing Overhead Cost                           $ 48.07                                $ 67.30

Unit Product Total Cost                                      $ 111.07                               $ 115.30

2a. Allocation of manufacturing overheads by using acivity based costing;

Particulars                                                                 X200                                       X99

Machine Setup Cost                $ 74,880 ($ 187,200 x 96 / 240)           $ 112,320              

Special Processing                                       $ 413,400 ($ 413,400 x 1,060 / 1,060)             NIL

General Factory                                            $ 680,000 ($ 2,976,000 x 8,500 / 37,200)    $ 2,296,000

Total Manufaturing Overhead                       $ 1,168,280                                                  $ 2,408,320

Units Produced                                            17,000                                                         41,000

Manufacturing Overhead per unit                 $ 68.72                                                         $ 58.74

2b. Calculation of Unit Product Cost;

Particulars                                                        X200                                    X99

Direct Material Cost per unit $ 43 $ 20                               

Direct Labor Cost per unit                                 $ 20 (0.5 x $ 40)                   $ 28 (0.70 x $ 40)

Manufacturing Overhead Cost                           $ 68.72                                $ 58.74

Unit Product Total Cost                                      $ 131.72                              $ 106.74

Particulars X200 X99 Total Annual Production 17,000 41,000 Direct Labour Hours 8,500 hours 28,700 hours 37,200 hours Total Manufacturing Overheads $ 3,576,600 x 8,500 / 37,200 = $ 817,234 $ 2,759,366 $ 3,576,600 Predetermined overhead rate $ 817,234 / 17,000 = $ 48.07 per unit $ 67.30 per unit

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