Erte, Inc., manufactures two models of high-pressure steamvalves, the XR7 model and the ZD5 model. Data regarding the twoproducts follow:
Product DirectLabor-Hours Annual
Production TotalDirect
Labor-Hours XR7 0.5 DLHs perunit 24,000 Units 12,000 DLHs ZD5 0.7 DLHs perunit 39,000 Units 27,300 DLHs 39,300 DLHs
Additionalinformation about the company follows: a. Product XR7 requires $39 indirect materials per unit, and product ZD5 requires $21. b. The direct labor rate is $50 perhour. c. The company has always used direct labor-hours as the base forapplying manufacturing overhead cost to products. Manufacturingoverhead totals $1,621,800 per year.
d. Product XR7 is more complex to manufacture than product ZD5 andrequires the use of a special milling machine.
e. Because of the special work required in (d) above, the companyis considering the use of activity-based costing to apply overheadcost to products. Three activity cost pools have been identifiedand the first-stage allocations have been completed. Dataconcerning these activity cost pools appear below:
Estimated Total Activity
Activity CostPool ActivityMeasure Estimated
Total Cost XR7 ZD5 Total Machine setups Number ofsetups $ 167,200 88 132 220 Special milling Machine-hours 275,600 1,060 0 1,060 General factory Directlabor-hours 1,179,000 12,000 27,300 39,300 $ 1,621,800
Required: 1. Assume that the companycontinues to use direct labor-hours as the base for applyingoverhead cost to products.
a. Compute the predetermined overhead rate. (Round youranswer to the nearest dollar amount. Omit the "$" sign in yourresponse.)
Predeterminedoverhead rate $ per DLH
b. Determine the unit product cost of each product. (Roundpre-determined overhead rate to nearest dollar amount. Round otherintermediate answers and the final answer to two decimal places.Omit the "$" sign in your response.)
Model XR7 ZD5 Unit productcost $ $
2. Assume that thecompany decides to use activity-based costing to apply overheadcost to products.
a.
Compute the activity rate for each activity cost pool. Also,compute the amount of overhead cost that would be applied to eachproduct. (Round your overhead cost per unit to 2 decimalplaces. Omit the "$" sign in your response.)
Activity costPool Activity Rate Machine setups $ Per setup Specialprocessing $ Per MH General factory $ Per DLH
Activity CostPool ModelXR7 ModelZD5 Total overheadcost $ $ Overhead cost perunit $ $
b. Determine the unit product cost of each product. (Roundyour intermediate and final answers to 2 decimal places. Omit the"$" sign in your response.)
Unit product cost ofModel XR7 $ Unit product cost ofModel ZD5 $
Erte, Inc., manufactures two models of high-pressure steamvalves, the XR7 model and the ZD5 model. Data regarding the twoproducts follow: |
| Product | DirectLabor-Hours | Annual Production | TotalDirect Labor-Hours |
| XR7 | 0.5 DLHs perunit | 24,000 Units | 12,000 DLHs |
| ZD5 | 0.7 DLHs perunit | 39,000 Units | 27,300 DLHs |
| 39,300 DLHs | |||
| Additionalinformation about the company follows: | |
| a. | Product XR7 requires $39 indirect materials per unit, and product ZD5 requires $21. |
| b. | The direct labor rate is $50 perhour. |
| c. | The company has always used direct labor-hours as the base forapplying manufacturing overhead cost to products. Manufacturingoverhead totals $1,621,800 per year. |
| d. | Product XR7 is more complex to manufacture than product ZD5 andrequires the use of a special milling machine. |
| e. | Because of the special work required in (d) above, the companyis considering the use of activity-based costing to apply overheadcost to products. Three activity cost pools have been identifiedand the first-stage allocations have been completed. Dataconcerning these activity cost pools appear below: |
Estimated Total Activity | ||||||
| Activity CostPool | ActivityMeasure | Estimated Total Cost | XR7 | ZD5 | Total | |
| Machine setups | Number ofsetups | $ | 167,200 | 88 | 132 | 220 |
| Special milling | Machine-hours | 275,600 | 1,060 | 0 | 1,060 | |
| General factory | Directlabor-hours | 1,179,000 | 12,000 | 27,300 | 39,300 | |
| $ | 1,621,800 | |||||
| Required: | |
| 1. | Assume that the companycontinues to use direct labor-hours as the base for applyingoverhead cost to products. |
| a. | Compute the predetermined overhead rate. (Round youranswer to the nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Predeterminedoverhead rate | $ per DLH | |
| b. | Determine the unit product cost of each product. (Roundpre-determined overhead rate to nearest dollar amount. Round otherintermediate answers and the final answer to two decimal places.Omit the "$" sign in your response.) |
| Model | ||
| XR7 | ZD5 | |
| Unit productcost | $ | $ |
| 2. | Assume that thecompany decides to use activity-based costing to apply overheadcost to products. | |
| a. | Compute the activity rate for each activity cost pool. Also,compute the amount of overhead cost that would be applied to eachproduct. (Round your overhead cost per unit to 2 decimalplaces. Omit the "$" sign in your response.) |
| Activity costPool | Activity Rate | |
| Machine setups | $ | Per setup |
| Specialprocessing | $ | Per MH |
| General factory | $ | Per DLH |
| Activity CostPool | ModelXR7 | ModelZD5 |
| Total overheadcost | $ | $ |
| Overhead cost perunit | $ | $ |
| b. | Determine the unit product cost of each product. (Roundyour intermediate and final answers to 2 decimal places. Omit the"$" sign in your response.) |
| Unit product cost ofModel XR7 | $ |
| Unit product cost ofModel ZD5 | $ |
Related questions
Pryad Corporation makes ultra-lightweight backpacking tents.Data concerning the company's two product lines appear below: |
| Deluxe | Standard | |||||
| Direct materials perunit | $ | 73 | $ | 46 | ||
| Direct labor perunit | $ | 13.00 | $ | 9.00 | ||
| Direct labor-hoursper unit | .50 | DLHs | 0.50 | DLHs | ||
| Estimated annualproduction | 22,000 | units | 76,000 | units | ||
The company has atraditional costing system in which manufacturing overhead isapplied to units based on direct labor-hours. Data concerningmanufacturing overhead and direct labor-hours for the upcoming yearappear below: |
| Estimated totalmanufacturing overhead | $303,800 | |
| Estimated totaldirect labor-hours | 49,000 | DLHs |
| Required: | |
| 1. | Determine the unit product costs of the Deluxe and Standardproducts under the company's traditional costing system.(Round your intermediate and final answers to 2 decimalplaces. Omit the "$" sign in your response.) |
| Deluxe | Standard | |
| Unit productcost | $ | $ |
| 2. | The company is considering replacing its traditional costingsystem for determining unit product costs for external reports withan activity-based costing system. The activity-based costing systemwould have the following three activity cost pools: |
Expected Activity | |||||
| Activities andActivity Measures | Estimated Overhead Cost | Deluxe | Standard | Total | |
| Supporting directlabor (direct labor-hours) | $ | 171,500 | 11,000 | 38,000 | 49,000 |
| Batch setups(setups) | 61,600 | 180 | 100 | 280 | |
| Safety testing(tests) | 70,700 | 24 | 76 | 100 | |
| Total manufacturingoverhead cost | $ | 303,800 | |||
Determine the unit productcosts of the Deluxe and Standard products under the activity-basedcosting system. (Round your intermediate and final answersto 2 decimal places. Omit the "$" sign in yourresponse.) |
| Deluxe | Standard | |
| Unit productcost | $ | $ |
Smoky Mountain Corporation makes two types of hikingboots%u2014Xtreme and the Pathfinder. Data concerning these twoproduct lines appear below: |
| Xtreme | Pathfinder | |
| Selling price per unit | $141 | $103 |
| Direct materials per unit | $59 | $45 |
| Direct labor per unit | $36 | $36 |
| Direct labor-hours per unit | 3 DLHs | 3 DLHs |
| Estimated annual production | 13,000 units | 74,000 units |
The company has a traditional costing system in which manufacturingoverhead is applied to units based on direct labor-hours. Dataconcerning manufacturing overhead and direct labor-hours for theupcoming year appear below: |
| Estimated total manufacturing overhead | $4,332,600 |
| Estimated total direct labor-hours | 261,000 DLHs |
| | |
| Requirement 2: |
The company is considering replacing its traditional costing systemwith an activity-based costing system that would assign itsmanufacturing overhead to the following four activity cost pools(the Other cost pool includes organization-sustaining costs andidle capacity costs): |
| Expected Activity | ||||
| Activities and Activity Measures | Estimated Overhead cost | Xtreme | Pathfinder | Total |
| Supporting direct labor (direct labor-hours) | $1,860,930 | 39,000 | 222,000 | 261,000 |
| Batch setups (setups) | 468,900 | 110 | 190 | 300 |
| Product sustaining (number of products) | 555,800 | 1 | 3 | 4 |
| Other | 1,446,970 | NA | NA | NA |
| Total manufacturing overhead cost | $4,332,600 | |||
Compute the product margins for the Xtreme and the Pathfinderproducts under the activity-based costing system. (Negative amount should be indicated by a minus sign. Do not roundyour intermediate calculations. Omit the "$" sign in yourresponse.) |
| Xtreme | Pathfinder | Total | |
| Product margin | $ | $ | $ |
