Colton Company manufacutres two products, Product k-7 andProduct L-15. Product L-15 is of fairly recent origin, having beendeveloped as an attempt to enter a market closely related to thatof Product K-7. Product L-15 is the more complex of the twoproducts, requiring 2.0 hours of direct labor time per unit tomanufacture compared to 1.0 hour of direct labor time for ProdutK-7. Product L-15 is produced on an automated production line.Overhead currently is applied to the products on the basis ofdirect labor-hours. The company estimated it would incur $510,000in manufacturing overhead costs and produce 10,000 units ProductL-15 and 40,000 units of Product K-7 during the current year.
Unit Costs for materials and labor are:
Product K-7 Product L-15 Direct Material $11 $24 Direct Labor $6 $12
Required:
a. Compute the predetermined overhead rate under the currentmethod, and determine the unit product cost of each product for thecurrent year.
b. The company is considering the use of activity-based costingas an alternative to its traditional costing method formanufacturing overhead. Data relating to the company's activitycost pools for the current year are given below:
Total Activity Acitivity Cost Pool Total Cost Product K-7 Product L-15 Total Machine Setup Required $204,000 800 1,600 2,400 Purchase Orders Issued
43,500 500 100 600 Machine Hours Required 105,000 7,000 10,500 17,500 Maintenance Requests Issued 157,000 650 850 1,500 510,000
Using the data above, determine the unit product cost of eachproduct for the current year.
c. What item of overhead cost make Product l-15 so costly toproduce according to the activity-based costing system? Whatinfluence might the activity based costing data have onmanagement's opinions regarding the profitability of ProductL-15?
Colton Company manufacutres two products, Product k-7 andProduct L-15. Product L-15 is of fairly recent origin, having beendeveloped as an attempt to enter a market closely related to thatof Product K-7. Product L-15 is the more complex of the twoproducts, requiring 2.0 hours of direct labor time per unit tomanufacture compared to 1.0 hour of direct labor time for ProdutK-7. Product L-15 is produced on an automated production line.Overhead currently is applied to the products on the basis ofdirect labor-hours. The company estimated it would incur $510,000in manufacturing overhead costs and produce 10,000 units ProductL-15 and 40,000 units of Product K-7 during the current year.
Unit Costs for materials and labor are:
| Product K-7 | Product L-15 | |
| Direct Material | $11 | $24 |
| Direct Labor | $6 | $12 |
Required:
a. Compute the predetermined overhead rate under the currentmethod, and determine the unit product cost of each product for thecurrent year.
b. The company is considering the use of activity-based costingas an alternative to its traditional costing method formanufacturing overhead. Data relating to the company's activitycost pools for the current year are given below:
| Total Activity | ||||
| Acitivity Cost Pool | Total Cost | Product K-7 | Product L-15 | Total |
| Machine Setup Required | $204,000 | 800 | 1,600 | 2,400 |
Purchase Orders Issued | 43,500 | 500 | 100 | 600 |
| Machine Hours Required | 105,000 | 7,000 | 10,500 | 17,500 |
| Maintenance Requests Issued | 157,000 | 650 | 850 | 1,500 |
| 510,000 | ||||
Using the data above, determine the unit product cost of eachproduct for the current year.
c. What item of overhead cost make Product l-15 so costly toproduce according to the activity-based costing system? Whatinfluence might the activity based costing data have onmanagement's opinions regarding the profitability of ProductL-15?
Related questions
Cabat Company manufactures two products, Product C and Product D. The company estimated it would incur $189,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current periodâs operations appear below:
| Product C | Product D | |||||||
| Estimated volume | 4,400 | units | 3,600 | units | ||||
| Direct labor-hours per unit | 2.40 | hours | 2.00 | hour | ||||
| Direct materials cost per unit | $ | 17.60 | $ | 30.90 | ||||
| Direct labor cost per unit | $ | 15.60 | $ | 12.00 | ||||
| Requried: | |
| a-1. | Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.) |
| Predertemined overhead rate | ____ per DLH |
| a-2. | Determine the unit product cost of each product for the current year. (Do not round your intermediate calculations. Round your final answer to 2 decimal places.) |
| Product C | Prodcut D | |
| Unit Product Cost |
| b. | The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: |
| Activity Cost Pools | Estimated | Expected Activity | |||
| Product C | Product D | Total | |||
| Machine setups | $ | 13,390 | 230 | 240 | 470 |
| Purchase orders | 78,840 | 1,060 | 1,400 | 2,460 | |
| General factory | 97,680 | 10,560 | 7,200 | 17,760 | |
| Total | $ | 189,910 | |||
Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.)
| Product C | Prodcut D | |
| Unit Product Cost |
