Question

	Deluxe	Tourist
Annual sales in units	1,000	9,000
Direct materials per unit	$30	$30
Direct labor-hours per unit	1	1
Direct labor rate	$17 per DLH
	Estimated Overhead	Expected Activity
Activities and Activity Measures	Cost	Deluxe	Tourist	Total
Labor related (direct labor-hours)	$35,000	1,000	9,000	10,000
Machine steups (setups)	120,000	40	60	100
Production Order (orders)	70,000	35	15	50
General Factory (machine-hours)	150,000	10,000	10,000	20,000
	$375,000

1.) What is the ABC unit product cost for the Deluxe model?

2.) What is the ABC unit product cost for the Tourist model?

Answer 1

Allocation of overhead cost for Deluxe:

Activity	Overhead Cost	Activity rate	Overhead allocated
Labour related	35000	1000/10000=10%	3500
Machine setups	120000	40/100=40%	48000
Production order	70000	35/50=70%	49000
General factory	150000	10000/20000=50%	75000
Total			175500

Allocation of overhead cost for Tourist:

Activity	Overhead Cost	Activity rate	Overhead allocated
Labour related	35000	9000/10000=90%	31500
Machine setups	120000	60/100=60%	72000
Production order	70000	15/50=30%	21000
General factory	150000	10000/20000=50%	75000
Total			199500

Therefore product cost:

	Deluxe	Tourist
Direct material	30	30
Direct labour	17	17
Overhead	175.5	22.17
Total	222.5	69.17