Question

wrangler, inc manufactures and sells two products: product G1 and F2. 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 G1 800 9.0 7,200

product F2 800 11.0 8,800

total direct labor hours 16,000

the direct labor rate is $15.30. the direct materials cost per unit for each product is given below:

direct materials cost per unit

product G1 $100.50

product F2 $292.00 the company is considering adopting an activity based costing system with the following activity cost pools, activity measures, and expected activity: expected activity

activity cost pools activity measures estimated overhead cost product G1 product F2 total

labor related DLHs $732,480 7,200 8,800 16,000

machine setups setups 53,809 400 300 700

order size MHs 600,525 3,800 3,700 7,500

the overhead applied to each unit of product G1 under activity based costing is closet to:

Answer 1

Solution:

Computation of activity rate, Allocation of Overhead and computation of overhead cost per unit - Activity Based Costing
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	G1		F2
					Usage	Allocated Costs	Usage	Allocated Costs
Labor related	$732,480.00	Direct labor hour	16000	$45.78	7200	$329,616.00	8800	$402,864.00
Machine setups	$53,809.00	Machine setups	700	$76.87	400	$30,748.00	300	$23,061.00
Order size	$600,525.00	Machine hours	7500	$80.07	3800	$304,266.00	3700	$296,259.00
Total	$1,386,814.00					$664,630.00		$722,184.00
Nos of units						800		800
Overhead cost per unit						$830.79		$902.73

Therefore overhead applied to each unit of product G1 under activity based costing is closest to = $830.79 per unit