Question

Woodland industries manufactures and sells custom-made windows. Its job costing system was designed using an activity-based costing approach. Direct materials and direct labor costs are accumulated separately, along with information concerning three manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $13 per hour and that there were no beginning inventories. The following information was available for 2016, based on an expected production level of 52,800 units for the year, which will require 220,000 direct labor hours:
Activity-Cost Driver Budgeted Costs for 2016 Cost Driver Used as Allocation Base Cost Allocation Rate
Materials handling $61,600 Number of parts used $0.28 per part
Cutting and lathe work $2,710,400 Number of parts used $12.32 per part
Assembly and inspection $3,850,000 Direct labor hours $17.50 per hour
The following production, costs and activities occurred during the month of July:

Units Produced Direct Materials Costs Number of Parts Used Direct Labor Hours
3,050 $101,500 508 13,600
Required:

a. Calculate the total manufacturing costs and the cost per unit of the windows produced during the month of July(using the activity-based costing approach). (Round "Cost per unit produced" to 2 decimal places.)

b. Assume instead that Woodland Industries applies manufacturing overhead on a direct labor hours basis (rather than using the activity-based costing system). Calculate the total manufacturing cost and the cost per unit of the windows produced during the month of July. (Round "Cost per unit product" to 2 decimal places.)

c. Which approach do you think provides better information for manufacturing managers?

Answer 1

Answer:

Explanation:

a.

Direct materials 101,500

Direct labour (13,600 * 13) 176, 800

Materials handling (508 * 0.28) 142.24

Cutting and lathe work (508 * 12.32) 6258.56

Assembly and inspection (13,600 * 17.5) 238,000

Total manufacturing cost 522,700.8

Cost per unit produced = 522,700.8 / 3,050 =  

= 171.377 per unit.

b.

Predetermined overhead rate = Estimated overhead costs / Estimated Direct labour hours

(61,600 + 2,710,400 + 3,850,000) / 220,000

= 30.1 per direct labour hour

Direct materials 101,500

Direct labour (13,600 * 13) 176,800

Manufacturing overhead (13,600 * 30.1) 409,360

Total manufacturing cost 687,660

Cost per unit produced = 687,660/ 3,050

= 225.46 per unit.