Tommy Lyons Company manufactures and sells two products: Product S3 and Product S2. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce the output appear below:
Product Info
Product S3: 800 units @ 8.0 DLH/unit = 6,400 hours
Product K2: 900 units @6.0 DLH/unit = 5,400 hours
Direct Material Cost/Unit
The direct labor rate is $18.00 per DLH. The direct materials cost per unit for each product is given below:
Product S3: $280.70
Product K2: $157.90
Activity Cost Pools
The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, total overhead costs and expected activity for each product.
Labor Related
Direct labor hours, total OH $523,094
S3 = 6,400
K2 = 5,400
Total = 11,800 DLHs
Machine Set-ups
Number of tests, total OH = $135,478
S3 = 600
K2 = 800
Total = 1,400 Tests
General Factory
Machine hours, total OH = $392,327
S3 = 5,000
K2 = 5,300
Total = 10,300 MHs
Total Overhead Costs
Including: DLHs, machine set-ups, machine hours = $1,050,899
Required:
The company currently uses a traditional costing methodin which overhead is applied to products based solely on direct labor-hours. Compute the company's predetermined overhead rate under this costing method.
How much overhead would be applied to each product under the company's traditional costing method?
Determine the unit product cost of each product under the company's traditional costing method.
Compute the activity rates under the activity-based costing system.
Determine how much overhead would be assigned to each product under the activity-based costing system.
Determine the unit product cost of each product under the activity-based costing method.
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?
