Cosgrove Company manufactures two products, Product K-7 and Product L-15. Produc
ID: 2466596 • 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 2 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 $885,195 in manufacturing overhead costs and produce 16,400 units of Product L-15 and 65,600 units of Product K- 7 during the current year. Unit costs for materials and labor are: Product K-7 Product L-15 Direct material $ 21 $ 25 Direct labor $ 7 $ 13
Compute the predetermined overhead rate under the current method of allocation and.
Determine the unit product cost of each product for the current year
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.
Required:Explanation / Answer
a-1. Total direct labor hours = 16,400 x 3 + 65,600 x 2 = 180,400 hours
Predetermined overhead rate = Budgeted manufacturing overhead costs / Budgeted labor hours = $ 885,195 / 180,400 = $ 4.91 per direct labor hour
a-2. Unit product cost under traditional costing:
b. Unit product cost under activity based costing:
K-7 L-15 Direct material cost 21 25 Direct labor 7 13 Manufacturing overhead cost 9.82 14.73 Total product cost $ 37.82 $ 52.73