Question

vattes,inc manufactures and sells two products: product 15 and product U1. data concerning the expected production of each product and the expected total direct labor-hours (DHL) required tp produce that output appear below: Expected production Direct labor hours per unit total direct labor hours

product 15 700 7.0 4,900

product u1 200 4.0 800

total direct labor hours 5,700

the direct labor rate is 22.00 per DHL. The direct matrials cost per unit for each product is given below

Direct materials cost per unit

product 15 $261,60

product U1 121.60 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 I5 product U1 total

labor related DHLs $268,698 4,900 800 5,700

machine setups setups 37, 324 300 400 700

order size Mhs 633,895 4,900 4,800 9,700

__________

$939,917

what is the unit product cost of I5 under traditional costing is greater than its under under activity based costing by $344.02? is less $494.70? is greater than $494.70? is less than $344.02?

  

activity cost pools activity measures estimated overhead cost

Answer 1

Total overhead	939917	=268698+37324+633895
Overhead applied to I5 under traditional costing	807999	=939917/5700*4900
Overhead per unit under traditional costing	1154.29	=807999/700
Overhead applied to I5 under activity costing:
Labor related	230986	=268698/5700*4900
Machine setups	15996	=37324/700*300
Order size	320215	=633895/9700*4900
Overhead applied to I5 under activity costing	567197
Overhead per unit under activity costing	810.27	=567197/700
Difference in cost per unit = 1154.29-810.27 = $344.02
The correct option is greater than under activity based costing by $344.02