Question

Puget World, Inc., manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:
Direct Labor-
Hours per Unit Annual Production Total Direct
Labor-Hours
Model N 800 XL 3.0 3,000 units 9,000
Model N 500 1.0 12,000 units 12,000
21,000
Additional information about the company follows:
a. Model N 800 XL requires $75 in direct materials per unit, and Model N 500 requires $25.
b. The direct labor wage rate is $18 per hour.
c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.
d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
Activity Cost Pool Activity
Measure Estimated
Overhead Cost
Machine setups Number of setups $ 360,000
Special processing Machine-hours 165,000
General factory Direct labor-hours 1,260,000
$ 1,785,000
Expected Activity
Activity Measure Model N 800 XL Model N 500 Total
Number of setups 100 200 300
Machine-hours 16,500 0 16,500
Direct labor-hours 9,000 12,000 21,000
References
Section BreakProblem 3-17A Contrast Activity-Based Costing and Conventional Product Costs [LO3-2, LO3-3, LO3-4]
2.
value:
6.00 points
Required information
Problem 3-17A Part 1
Required:
1. Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products.
a. Compute the predetermined overhead rate.
b. Compute the unit product cost of each model.

Answer 1

a. The predetermined overhead rate is $85 Per DHL

b. The unit product cost of each model are:

•N800 $384

•N500 $128

a. Computation for  the predetermined overhead rate

Using this formula

Plantwide predetermined overhead rate= Estimated total costs/Total direct labour hours      

Let plug in the formula

Plantwide predetermined overhead rate =         1,785,000 /             21,000

Plantwide predetermined overhead rate =$85 Per DHL

b. Computation of Unit product Cost for each models      

N800  N500

Direct material $75.00  $25.00  

Direct labour  $54.00  $18.00

($18 per hour×3.0=$54)

($18 per hour×1.0=$18)  

Overhead  $225.00  $75.00

(85×3=$255)  (85×1.0=$85)  

Total Unit cost $384.00  $128.00  

Inconclusion a. The predetermined overhead rate is $85 Per DHL

b. The unit product cost of each model are:

•N800 $384

•N500 $128

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