Carter, Inc. produces two different products, Product A and Product B. Carter us
ID: 341938 • Letter: C
Question
Carter, Inc. produces two different products, Product A and Product B. Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Design, Production, and Inspection. The cost of each activity and usage of the activity drivers are as follows: Design (Engineering Hours) Production (Direct Labor Hours) Inspection (Batches) Cost $409.200 $453,200 $ 291,200 Usage by Product A 260 106,000 360 Usage by Product B 360 306,000 160 Carter manufactures 10,600 units of Product A and 8,100 units of Product B per month. Required: a. Calculate the predetermined overhead rate under the traditional costing system. (Round your answer to 2 decimal places.) edetermined Overhead Rate b. Calculate the activity rate for Design. per hour c. Calculate the activity rate for Machining. (Round your answer to 2 decimal places.) per hourExplanation / Answer
a) Total cost to be allocated = Design cost +Production cost + Inspection cost
= $409,200+$453,200+$291,200 = $1,153,600
Total Direct Labor Hours = Usage by Product A+Usage by product B
= 106,000+306,000 = 412,000 DLHs
Predetermined Overhead rate = Total cost to be allocated/Total Direct Labor Hours
= $1,153,600/412,000 = $2.80 per direct labor hour
b) Activity rate for Design = Design Cost/Total Engineering hours
Total Engineering hours = Usage by Product A+Usage by product B
= 260+360 = 620 hours
Activity rate for design = $409,200/620 hrs = $660 per engineering hour
c) Activity rate for machining = Machining cost/Total Direct labor hours
= $453,200/412,000 hrs = $1.10 per DLH
d) Activity rate for Inspection = Inspection cost/Total Batches
Total Batches = 360+160 = 520 batches
Activity rate for Inspection = $291,200/520 batches = $560 per batch
e) Total manufacturing cost assigned to Product A = Predetermined OH rate*Direct labor hours used by Product A
= $2.80*106,000 = $296,800
Total units of product A = 10,600 units
Indirect manufacturing cost per unit = $296,800/10,600 units = $28 per unit
f) Total manufacturing cost assigned to Product B = Predetermined OH rate*Direct labor hours used by Product B
= $2.80*306,000 = $856,800
Total units of product B = 8,100 units
Indirect manufacturing cost per unit = $856,800/8,100 units = $105.78 per unit
g) Total manufacturing cost assigned to Product A = (260*$660)+(106,000*$1.1)+(360*$560)
= $171,600+$116,600+$201,600 = $489,800
Indirect manufacturing cost per unit = $489,800/10,600 units = $46.21 per unit
h) Total manufacturing cost assigned to Product B = (360*$660)+(306,000*$1.1)+(160*$560)
= $237,600+$336,600+$89,600 = $663,800
Indirect manufacturing cost per unit = $663,800/8,100 units = $81.95 per unit
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