Question -
1. Wild Wild West Co. manufactures two products, Stirrups and Saddles. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below:
|
Stirrups
|
Saddles
|
|
Estimated volume
|
3,400 units
|
4,800 units
|
|
Direct labour hours per unit
|
1.40 hour
|
1.90 hours
|
|
Direct materials cost per unit
|
$7.40
|
$12.70
|
|
Direct labour cost per unit
|
$14.00
|
$19.00
|
Required: Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
2. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
|
Activity Cost Pool
|
Estimated Overhead Costs
|
Expected Activity: Stirrups
|
Expected Activity: Saddles
|
Total
|
|
Machine setups
|
$12,190
|
80
|
150
|
230
|
|
Purchase orders
|
79,200
|
730
|
920
|
1,650
|
|
General factory
|
69,400
|
4,760
|
9,120
|
13,880
|
|
Total
|
$160,790
|
|
|
|
Required - Determine the unit product cost of each product for the current period using the activity-based costing approach.