Problem - Sandstorm Manufacturing Inc. makes two types of industrial component parts-the LE100 and the UL600. It annually produces 120,000 units of LE100 and 25,000 units of UL600. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below:
|
LE100
|
UL600
|
Total
|
|
Direct materials
|
$720,000
|
$357,000
|
$1,077,000
|
|
Direct labor
|
$240,000
|
$100,000
|
$340,000
|
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:
|
Activity Cost Pool
(and Activity Measure)
|
Manufacturing Overhead
|
Activity
|
|
LE100
|
UL600
|
Total
|
|
Machining (machine-hours)
|
$400,000
|
36,000
|
135,000
|
171,000
|
|
Setups (setup hours)
|
300,000
|
150
|
600
|
750
|
|
Product-level (number of products)
|
200,500
|
2
|
2
|
4
|
|
General factory (direct labor dollars)
|
120,000
|
$240,000
|
$100,000
|
4340,000
|
|
Total manufacturing overhead cost
|
$1,020,500
|
|
|
|
Required:
1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.