Question

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

Unitary cost= $351

Step-by-step explanation:

Giving the following information:

Overhead costs:

Setups= $240,000

General factory= $2,350,000

Machine processing= $120,000

Total overhead= $2,710,000

Total direct labor hours= 10,000 + 10,000= 20,000

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 2,710,000/20,000

Predetermined manufacturing overhead rate= $135.5 per direct labor hour

Now, we can calculate the unitary cost for Product B:

Direct materials $60

Direct labor: 2 hours at $10/hour $20

Unitary cost= 60 + 20 + 2*135.5

Unitary cost= $351