Question

Cassidy Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs).
The company has two products, VIP and Kommander, about which it has provided the following data:

VIP Kommander
Direct materials per unit $27.50 $62.10
Direct labor per unit $15.60 $52.00
Direct labor-hours per unit 0.60 2.00
Annual production 40,000 15,000
The company's estimated total manufacturing overhead for the year is $2,449,440 and the company's estimated total direct labor-hours for the year is 54,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports.

Data for this proposed activity-based costing system appear below:

Activities and Activity Measures

Estimated Overhead Cost:
Assembling products (DLHs) $918,000
Preparing batches (batches) 397,440
Product support (product variations) 1,134,000
Total $2,449,440

Expected Activity VIP Kommander Total
DLHs 24,000 30,000 54,000
Batches 1,458 1,026 2,484
Product variations 2,592 1,188 3,780

Unit overhead cost of Product Kommander under the activity-based costing system is closest to:

A. $204.82.
B. $68.70.
C. $182.80.
D. $114.10.

Answer 1

Answer:

Answer is option B $68.70

Total overhead costs

Assembling products (918000/54000)*3000.......510,000

Preparing batches (397440/2484)*1026.............164160

Product support (1134000/3780)*1188.............. 356400

Total overhead costs............................................ 1030560

Unit overhead cost = total overhead costs / number of units = 1030560/15000 = 68.70

Explanation: