Question

Rocky Mountain Corporation makes two types of hiking boots?Xactive and Pathbreaker. Data concerning these two product lines appear below:
Xactive Pathbreaker
Direct materials per unit $ 65.60 $ 51.80
Direct labor cost per unit $ 19.00 $ 13.80
Direct labor-hours per unit 1.4 DLHs 1 DLHs
Estimated annual production and sales 33,000 units 83,000 units
The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead $2,687,360
Estimated total direct labor-hours 129,200 DLHs

1-a. Compute the predetermined overhead rate based on direct labor-hours.
1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

Answer 1

Answer:

1a. Predetermined overheard rate is $20.8

1b. Product cost for each product:

                                                       Xactive ($)                       Pathbreaker  ($)      

                                                        113.72                              86.4

Explanation:

1(a)

Predetermined overheard rate is calculated with formula:

Budgeted Cost

Activity Level

For Rocky Mountain:

=   $2,687,360

       129,200

= $20.8

1 (b) Product cost involves the total cost incurred directly as a result of making a product. Product cost is calculated by adding direct material cost, direct labour cost and manufacturing overheard together.

Product cost

                                                                  Xactive                        Pathbreaker

Direct material                                         65.60                              51.80

Direct labour cost                                    19.00                              13.80

Manufacturing overheard($20.8)           29.12                               20.8

                                                                 113.72                              86.4