EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product S. Product W is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year. Unit cost for materials and direct labor are:
Required:a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:
Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Question

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product S. Product W is produced on an automated production line.Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year. Unit cost for materials and direct labor are:

Required:a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year.b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

MUHAMMAD HAFIZ ISKANDAR ZULKARNAIN · Accepted Answer

Final Answer :

a.The company expects to work 40,000 direct labor-hours during the current year, computed as follows:

Using these hours as a base, the predetermined overhead using direct labor-hours would be:Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base =$500,000 ÷ 40,000 DLHs = $12.50 per DLHUsing this overhead rate, the unit product cost of each product would be:

b.The overhead rates are computed as follows:

The overhead cost charged to each product is:The overhead cost charged to Product S is:

Overhead cost per unit of Product S = $205,825 ÷ 60,000 units = $3.43 per unit (rounded)The overhead cost charged to Product W is:

Overhead cost per unit of Product W = $294,175 ÷ 10,000 units = $29.42 per unit (rounded)Using activity-based costing, the unit product cost of each product would be:

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