Question

Miranda T. Corporation manufactures two products: A and B. The company's accounting records revealed the following per-unit costs for direct materials and direct labor: Product A Product B Production volume (units) 4,000 5,000 Direct materials $40 $60 Direct labor: 2.5 hours at $10/hour $25 2 hours at $10/hour $20 Management is considering a shift to activity-based costing and gathered the following manufacturing overhead data: Expected Activity Activity Cost Pool Estimated OH Cost Activity cost driver Product A Product B Setups $240000 Number of setups 80 40 General factory $2350000 Direct labor hours 10,000 10,000 Machine processing $120000 Machine hours 2,000 1,000 Q: Suppose the company uses conventional job-order costing with a plantwide predetermined overhead rate and direct labor hours as the allocation base. Assuming that actual and expected direct labor hours are the same, what is the unit product cost of Product B under conventional job-order costing

Answer 1

Miranda T. Corporation

Unit Product Cost of Product B under conventional job-order costing:

= $371.00

Step-by-step explanation:

a) Data and Calculations:

Product A Product B

Production volume (units) 4,000 5,000

Direct materials $40 $60

Direct labor: at $10/hour $25 $20

Direct labor hours 2.5 2

b) Activity-based Costing System:

Manufacturing overhead:

Activity Cost Pool Estimated Activity cost Products

Overhead Cost Driver A B

Setups $240,000 No. of setups 80 40

General factory $2,350,000 Direct labor hours 10,000 10,000

Machine processing $120,000 Machine hours 2,000 1,000

Total Overhead Cost $2,710,000

c) Allocation of overhead based on direct labor hours:

Product A = $2,710,000/20,000 x 10,000 = $1,355,000

Product B = $2,710,000/20,000 x 10,000 = $1,355,000

d) Calculation of Total and Unit Product Costs:

Product A Product B

Direct Materials $160,000 $300,000

Direct Labor 250,000 200,000

Manufacturing overhead 1,355,000 1,355,000

Total product costs $1,765,000 $1,855,000

Unit cost $441.25 $371.00