Question

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

Direct Labor-Hours per unit Annual Production
Rims 0.80 29,000 units
Posts 0.80 73,000 units
Additional information about the company follows:
Rims require $20 in direct materials per unit, and Posts require $18.
The direct labor wage rate is $16 per hour.
Rims are more complex to manufacture than Posts and they require special equipment.
The ABC system has the following activity cost pools:
Estimated Activity
Activity Cost Pool Activity Measure Estimated
Overhead
Cost Rims Posts Total
Machine setups Number of setups $ 34,310 100 100 200
Special processing Machine-hours $ 113,150 1,000 0 1,000
General factory Direct labor-hours $ 1,218,000 4,000 83,000 87,000
Exercise 4-8 Part 2
2. Determine the unit product cost of each product according to the ABC system.
Unit product cost of Rims
Unit product cost of Posts

Answer 1

Answer and Explanation:

The computation of the unit product cost is shown below;

Particulars Rims Posts

Machine setups 17155 17155

(34310 ÷ 200 × 100)

Special processing 113150 0

General factory 56,000 1162000

(1218000 ÷ 87000 × 4000) (14 × 83000)

Total overhead 186305 1179155

Units 29000 73000

Overhead cost per unit 6.42 16.15

Direct material 20 18

Direct labor 12.8 12.80

(16 × .80)

Unit product cost 39.22 46.95