RangersFan96 Posts: 1, Reputation: 1 New Member #1 Oct 13, 2013, 07:49 PM
Rehm Company manufactures a product that is available in both a deluxe model and a r
Rehm Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined, and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.

Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur \$4,788,125 in manufacturing overhead cost and produce 16,000 units of the deluxe model and 122,000 units of the regular model. The deluxe model requires 1.0 hours of direct labor time per unit, and the regular model requires .5 hours. Material and labor costs per unit are as follows:

Model
Deluxe Regular
Direct materials \$ 153 \$ 118
Direct labor \$ 11 \$ 5

1a.

Predetermined overhead rate \$ per DLH

1b.
Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of each model. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "\$" sign in your response.)

Deluxe Regular
Unit product cost \$ \$

2.
Management is considering using activity-based costing to apply manufacturing overhead costs to products for external financial reports. The activity-based costing system would have the following four activity cost pools:

Activity Cost Pool Activity Measure Estimated
Purchase orders Number of purchase orders \$ 337,500
Scrap/rework orders Number of scrap/rework orders 482,625
Product testing Number of tests 1,368,000
Machine related Machine-hours 2,600,000

Expected Activity
Activity Measure Deluxe Regular Total
Number of purchase orders 500 1,000 1,500
Number of scrap/rework orders 375 300 675
Number of tests 5,760 8,640 14,400
Machine-hours 20,800 31,200 52,000

Compute the predetermined overhead rates (i.e. activity rates) for each of the four activity cost pools. (Omit the "\$" sign in your response.)

Activity Cost Pool Predetermined Overhead Rate
Purchase orders \$ per purchase order
Scrap/rework orders \$ per scrap/rework orders
Product testing \$ per test
Machine related \$ per MH

3. Using the predetermined overhead rates computed in part (2) above, do the following:

a.
Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit for each model. (Round your overhead per unit to 2 decimal places. Omit the "\$" sign in your response.)

Activity Cost Pool Deluxe Regular
Overhead cost per unit \$ \$

b.

Deluxe Regular
Direct materials \$ \$
Direct labor

Total unit product cost \$ \$
 rehmanvohra Posts: 739, Reputation: 27 Senior Member #2 Oct 14, 2013, 12:40 AM
Model
Deluxe Regular
Direct materials \$ 153 \$ 118
Direct labor \$ 11 \$ 5

1a.

Predetermined overhead rate \$ per DLH = 4,788,125/(16000+61000)=62.18 per DLH

1b.
Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of each model. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "\$" sign in your response.)

Deluxe Regular
Direct materials 153 118
Direct labor 11 5
Total 226 154

2.
Management is considering using activity-based costing to apply manufacturing overhead costs to products for external financial reports. The activity-based costing system would have the following four activity cost pools:

Activity Cost Pool Activity Measure Estimated
Purchase orders Number of purchase orders \$ 337,500
Scrap/rework orders Number of scrap/rework orders 482,625
Product testing Number of tests 1,368,000
Machine related Machine-hours 2,600,000

Expected Activity
Activity Measure Deluxe Regular Total
Number of purchase orders 500 1,000 1,500
Number of scrap/rework orders 375 300 675
Number of tests 5,760 8,640 14,400
Machine-hours 20,800 31,200 52,000

Compute the predetermined overhead rates (i.e. activity rates) for each of the four activity cost pools. (Omit the "\$" sign in your response.)

Activity Cost Pool Predetermined Overhead Rate
Purchase orders \$337,500/1500= 225 per purchase order
Scrap/rework orders \$ 482,625/675= per 715 scrap/rework orders
Product testing \$1,368,000/14400= 95 per test
Machine related \$2,600,000/52000 = 50 per MH

3. Using the predetermined overhead rates computed in part (2) above, do the following:

a.
Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit for each model. (Round your overhead per unit to 2 decimal places. Omit the "\$" sign in your response.)

Activity Cost Pool Deluxe Regular
Overhead cost per unit \$ \$

b.

Deluxe Regular
Direct materials \$ \$
Direct labor

Total unit product cost \$ \$

I am sure you can complete the rest on your own.In case you need further assistance, please do let me know.

 Question Tools Search this Question Search this Question: Advanced Search