Cosgrove Company manufactures two products, Product K-7 and Product L-15. Produc
ID: 2451361 • Letter: C
Question
Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K-7. Product L-15 is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 1 hour of direct labor time for Product K-7. Product L-15 is produced on an automated production line.
Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $958,396 in manufacturing overhead costs and produce 18,100 units of Product L-15 and 72,400 units of Product K- 7 during the current year.
Compute the predetermined overhead rate under the current method of allocation and. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
.
Determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:
Total Activity
Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
$
$
Unit costs for materials and labor are:Explanation / Answer
a1) Overhead Absoprtion Rate = Budgeted Cost / Bugeted Activity
= 958,396/126700
= $7.56
Activity = 18,100*3 + 72,400*1
= 126,700
a2) Cost per unit
b1) ABC method
Overheads Per unit for K7 = $458,646/ 72,400
= $6.33
Overheads per unit for L15 = $499,750 / 18,100
= $27.61
b2) Cost per Unit
Items K7 L15 Direct Material $12 $34 Direct Labor $16 $13 Overhead $7.56 $22.68 (7.56*3) Cost per Unit $35.56 $69.68