Question

Chang Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Plain and Fancy, about which it has provided the following data:

	Plain				Fancy
Direct materials per unit	$	25.40			$	60.20
Direct labor per unit	$	5.90			$	29.50
Direct labor-hours per unit		0.30				1.50
Annual production		45,000				15,000

The company's estimated total manufacturing overhead for the year is $1,310,400 and the company's estimated total direct labor-hours for the year is 36,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Supporting direct labor (DLHs)		$	576,000
Setting up machines (setups)			368,100
Parts administration (part types)			366,300
Total		$	1,310,400

	Expected Activity
	Plain		Fancy		Total
DLHs	13,500		22,500		36,000
Setups	1,193		852		2,045
Part types	660		330		990

The manufacturing overhead that would be applied to a unit of product Fancy under the activity-based costing system is closest to:

		$10.92.
		$28.24.
		$72.10.
		$36.40.

Answer 1

Solution:

Computation of overhead allocated to each unit of product Fancy
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Fancy
Usage	Allocated Costs
Supporting direct labor	$5,76,000.00	DLHs	36000	$16.00	22500	$3,60,000
Setting up machine	$3,68,100.00	setups	2045	$180.00	852	$1,53,360
Parts administration	$3,66,300.00	part types	990	$370.00	330	$1,22,100
Total						$6,35,460
/ units of Product fancy						15000
Manufacturing overhead applied to a unit of product Fancy						$42.36

Correct answer is "$42.36".