Question

Bramble Visuals produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.

Activity Pool		Department Costs				Cost Driver
Binding			$297,000			Number of units
Printing			955,500			Machine hours
Product design			234,000			Change orders
General			727,500			None
Total overhead costs			$2,214,000

Other information is as follows:

		Tablets		Books
Units		62,500		30,000
Direct materials cost per unit		$3.00		$10
Direct labor cost per unit		$7.00		$14.00
Direct labor hours		30,000		19,200
Machine hours		150,000		144,000
Change orders		1,500		2,400

Bramble’s managers have gathered the following information about selling and administrative costs.

Activity Pool		Total Cost		Cost Driver
Shipping		$300,000		Pounds shipped
Advertising		187,500		Number of mailings
Commissions		168,125		Sales price
Total selling and administrative costs		$655,625

		Tablets		Books
Weight		20,000 pounds		40,000 pounds
Advertising mailings		25,000		100,000
Sales commission		5% of sales price		8.00% of sales price
Selling price per unit		$35		$75

Using the information given here, calculate the product margin per unit for Tablets and Books using the traditional costing system. (Round all rates and final answers to 2 decmial places, e.g. 15.25.)

		Tablets		Books
Product margin per unit

Answer 1

1. predetermined overhead rate = total overhead costs / total direct labour hours

=> $2,214,000 / (30,000 + 19,200)

=>$2,214,000 / 49,200 hours.

=>$45 per DLH.

	Tablets	Books
Selling Price	$35.00	$75.00
Direct material cost per unit	$3.00	$10.00
DIrect labour cost per unit	$7.00	$14.00
Overhead per unit (Predetermined rate * direct labour hours / number of units) = ($45*30,000 / 62,500 units) = ($45*19,200 / 30,000 units)	$21.60	$28.80
Total unit cost	$31.60	$52.80
Product Margin	$3.40	$22.20