Question

Chhom, Inc., manufactures and sells two products: Product F9 and Product U4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product F9	200	2.0	400
Product U4	1,000	1.0	1,000
Total direct labor-hours			1,400

The direct labor rate is $27.30 per DLH. The direct materials cost per unit is $297 for Product F9 and $250 for Product U4.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product F9	Product U4	Total
Labor-related	DLHs	$	31,200	400	1,000	1,400
Production orders	orders		49,540	600	1,000	1,600
Order size	MHs		100,950	4,000	2,800	6,800
		$	181,690

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product F9	Product U4	Total
Labor-related	DLHs	$	31,200	400	1,000	1,400
Production orders	orders		49,540	600	1,000	1,600
Order size	MHs		100,950	4,000	2,800	6,800
		$	181,690

The overhead applied to each unit of Product U4 under activity-based costing is closest to:

Answer 1

Allocation of OH to Product U4
		OH Rates	Activity	OH Allocated
Labor-related		$   22.29	1000	$ 22,285.71
Production orders		$   30.96	1000	$ 30,962.50
Order size		$   14.85	2800	$ 41,567.65
Total OH allocated				$ 94,815.86
No. of units produced				1000
OH cost per unit				$        94.82

Workings:

			Total
Activity Cost pools		OH Cost	Activity	OH Rate
Labor-related		$   31,200.00	1400	$   22.29
Production orders		$   49,540.00	1600	$   30.96
Order size		$ 100,950.00	6800	$   14.85
		$ 181,690.00

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