Answer:
Lillich, Inc.
c. The unit product cost of Product U6 under traditional costing is greater than its unit product cost under activity-based costing by $5.63.
Explanation:
a) Data and Calculations:
Direct labor rate = $28.00 per DLH
Product U6 Product R5 Total
Expected production 690 1,060
Direct materials cost/unit $250.40 $167.80
Direct Labor Hours/unit 8.9 5.9
Total direct labor hours 6,141 6,254 12,395
Direct labor costs $171,948 ($28*6,141) $175,112 ($28*6,254)
Total direct materials cost $172,776 ($250.4*690) $177,868 ($167.8*1,060)
Total overhead $636,360 $658,752 $1,295,112
Total production cost $981,084 $1,011,732
Expected production 690 1,060
Cost per unit $1,421.86 $954.46
Traditional costing:
Direct labor costs $171,948 ($28*6,141) $175,112 ($28*6,254)
Total direct materials cost $172,776 ($250.4*690) $177,868 ($167.8*1,060)
Total overhead $641,612 $653,418 $1,295,112
Total production cost $986,336 $1,006,398
Expected production 690 1,060
Cost per unit $1,429.47 $949.43
Allocation of overhead based on direct labor hours
= $ 1,295,086/12,395
= $104.48 per DLH
Product U6 = $641,612 ($104.48 * 6,141)
Product R5 = $653,418 ($104.48 * 6,254)
Estimated Expected Activity
Activity Cost Pools Activity Overhead Product Product Total
Measures Costs U6 R5
Labor-related DLHs $ 201,638 7,125 7,280 14,405
Production orders Orders 72,840 1,350 1,250 2,600
Order size MHs 1,020,608 6,500 6,800 13,300
Total $ 1,295,086
Overhead rates:
Labor-related = $201,638/14,405 = $14.00 per DLH
Production orders = $72,840/2,600 = $28.00 per order
Order size = $1,020,608/13,300 = $76.74 per machine hour
Overhead allocation:
Product U6 Product R5 Total
Labor-related $99,750 (7,125*$14) $101,920 (7,280*$14) $201,670
Production orders 37,800 (1,350*$28) 35,000 (1,250*$28) 72,800
Order size 498,810 (6,500*$76.74) 521,832 (6,800*$76.74) 1,020,642
Total overhead $636,360 $658,752 $1,295,112
