Asked by Meghan Maratea on Jun 25, 2024
Verified
Faiella, Inc., manufactures and sells two products: Product S9 and Product G3.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below: 
The direct labor rate is $21.90 per DLH.The direct materials cost per unit for each product is given below: 
The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: 
Required:
In all computations involving dollars in the following requirements, round off your answer to the nearest whole cent.
a.The company currently uses a traditional costing method in which overhead is applied to products based solely on direct labor-hours.Compute the company's predetermined overhead rate under this costing method.
b.How much overhead would be applied to each product under the company's traditional costing method?
c.Determine the unit product cost of each product under the company's traditional costing method.
d.Compute the activity rates under the activity-based costing system.
e.Determine how much overhead would be assigned to each product under the activity-based costing system.
f.Determine the unit product cost of each product under the activity-based costing method.
g.What is the difference between the overhead per unit under the traditional costing method and the activity-based costing system for each of the two products?
h.What is the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products?
Traditional Costing
An accounting method that assigns all manufacturing overhead costs to products based on a predetermined overhead rate, regardless of the activities that generated the costs.
Activity-Based Costing
A costing method that assigns overhead and indirect costs to related products and services based on the activities they require.
Direct Labor-Hours
The total amount of time spent by workers directly involved in the manufacturing activities.
- Understand the principles of activity-based costing (ABC) and traditional costing methods.
- Compute and contrast unit product expenses utilizing traditional versus activity-based costing methods.
- Implement overhead allocation based on the hours of direct labor utilizing conventional costing techniques.
Verified Answer
CJ
Courtney J. CarrollJun 27, 2024
Final Answer :
a.Predetermined overhead rate = Estimated total overhead ÷ Total direct labor-hours
= $830,412 ÷ 8,600 DLHs = $96.56 per DLH (rounded)
b.Computation of overhead applied to each product:
c.Computation of traditional unit product costs: 
d.Computation of activity rates: 
e.Computation of the overhead cost per unit under activity-based costing. 
f.Computation of unit product costs under activity-based costing. 
g.The difference in overhead per unit is: 
h.The difference in unit product costs is: 
The unit product cost of Product S9 under traditional costing is greater than its unit product under activity-based costing by $243.87.
The unit product cost of Product G3 under traditional costing is less than its unit product cost under activity-based costing by $2,438.70.
Note that these differences in unit product costs are entirely explained by the differences in overhead costs between the two methods.
= $830,412 ÷ 8,600 DLHs = $96.56 per DLH (rounded)
b.Computation of overhead applied to each product:
c.Computation of traditional unit product costs: d.Computation of activity rates: e.Computation of the overhead cost per unit under activity-based costing. f.Computation of unit product costs under activity-based costing. g.The difference in overhead per unit is: h.The difference in unit product costs is: The unit product cost of Product S9 under traditional costing is greater than its unit product under activity-based costing by $243.87.The unit product cost of Product G3 under traditional costing is less than its unit product cost under activity-based costing by $2,438.70.
Note that these differences in unit product costs are entirely explained by the differences in overhead costs between the two methods.
Learning Objectives
- Understand the principles of activity-based costing (ABC) and traditional costing methods.
- Compute and contrast unit product expenses utilizing traditional versus activity-based costing methods.
- Implement overhead allocation based on the hours of direct labor utilizing conventional costing techniques.