Fleurant, Inc., manufactures and sells two products: Product W2 and Product P8. 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 W2 | 300 | 6 | 1,800 |
Product P8 | 600 | 3 | 1,800 |
Total direct labor-hours | 3,600 | ||
The direct labor rate is $30.10 per DLH. The direct materials cost per unit is $196.60 for Product W2 and $133.30 for Product P8.
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 W2 | Product P8 | Total | |
Labor-related | DLHs | $ | 211,576 | 1,800 | 1,800 | 3,600 |
Production orders | orders | 17,838 | 410 | 310 | 720 | |
Order size | MHs | 238,586 | 3,810 | 3,610 | 7,420 | |
$ | 468,000 | |||||
The overhead applied to each unit of Product W2 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)
rev: 03_25_2018_QC_CS-119201
Multiple Choice
$643.69 per unit
$794.79 per unit
$780.00 per unit
$408.31 per unit
Solution:
Computation of Activity rates | ||||
Activity Cost Pool | Total Cost | Total Activity | Activity rate | |
Labor related | $2,11,576 | 3600 | $58.77 | per DLH |
production orders | $17,838 | 720 | $24.78 | per order |
Order size | $2,38,586 | 7420 | $32.15 | per MH |
Computation of Overhead allocated to per unit of Product W2 | ||||
Activity Cost Pool | Activity rate | Activity usage by W2 | Overhead assigned | |
Machine related | $58.77 | per DLH | 1800 | $1,05,786 |
Batch Setup | $24.78 | per order | 410 | $10,160 |
Order size | $32.15 | per MH | 3810 | $1,22,492 |
Total Overhead allocated to Product W2 | $2,38,437 | |||
/units of W2 | 300 | |||
Total Overhead allocated to each unit of Product W2 | $794.79 |
Hence, second option is correct.
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