Question

Faz, Inc, manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours
Product X0 1,000 6 6,000
Product W7 590 3 1,770
Total direct labor-hours 7,770

The direct labor rate is $38.60 per DLH. The direct materials cost per unit is $163.50 for Product X0 and $145 for Product W7. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Expected Activity
Activity Cost Pools Activity Measures Estimated Overhead Cost Product X0 Product W7 Total
Labor-related DLHs $291,078 6,000 1,770 7,770
Production orders orders 20,848 690 890 1,580
Order size MHs 258,314 4,190 4,290 8,480
$570,240

If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product X0 would be closest to: ____________

Answer 1

$106.36 per unit

Step-by-step explanation:

Total overhead assigned to product X0

= [Total overhead / Total direct labor hours ] × Labor hours of product XO

= [$570,240 / 7,770] × 1,000

= $73,390

Overhead assigned to each unit of product X0

= $73,390 / Units of product X0

= $73,390 / 690

= $106.36 per unit