Question

Russell Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Slow and Fast, about which it has provided the following data:

	Slow				Fast
Direct materials per unit	$	14.10			$	43.40
Direct labor per unit	$	3.20			$	25.60
Direct labor-hours per unit		0.20				1.60
Annual production		48,000				33,000

The company's estimated total manufacturing overhead for the year is $2,967,600 and the company's estimated total direct labor-hours for the year is 62,400.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Assembling products (DLHs)		$	1,584,000
Preparing batches (batches)			487,890
Product support (product variations)			895,710
Total		$	2,967,600

	Expected Activity
	Slow		Fast		Total
DLHs	9,600		52,800		62,400
Batches	1,740		1,770		3,510
Product variations	1,110		1,080		2,190

The manufacturing overhead that would be applied to a unit of product Fast under the activity-based costing system is closest to:

Multiple Choice

• $138.44.

• $11.55.

• $76.98.

• $61.46.

Answer 1

Allocating OH :
Particulars				Fast
Assembling products		(52800 x $ 25.38)		$ 1,340,307.69
Preparing batches		(1770 x $ 139)		$    246,030.00
Product support		(1080 x $ 409)		$    441,720.00
Total OH allocated				$ 2,028,057.69
No. of units produced				33000
OH allocated per unit				$              61.46

Workings:

			Total			Total
Cost Pool			OH Cost	Drivers		Volume	Rate
Assembling products			$ 1,584,000.00	DLHs		62400	$   25.38
Preparing batches			$    487,890.00	Batches		3510	$ 139.00
Product support			$    895,710.00	Product Variation		2190	$ 409.00
			$ 2,967,600.00