Cosgrove Company manufactures two products, Product K-7 and Product L-15. Produc
ID: 2499613 • 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 $838,366 in manufacturing overhead costs and produce 18,400 units of Product L-15 and 92,000 units of Product K- 7 during the current year Unit costs for materials and labor are ProductProduct L- Direct material Direct labor K-7 $11 $ 8 15 $ 32 $ 16 Required a-1 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 "$" sign in your response.) Predetermined overhead rate a-2 Determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.) Unit Product Cost Product K-7 Product L-15Explanation / Answer
a1.
The company expects to work 147,200 direct labor-hours during the current year, computed as follows:
Product K-7: 92000*1= 92000 hours
Product L-15: 18400*3=55200
Using these hours as a base, the predetermined overhead using direct labor-hours would be: Predetermined overhead rate = Estimated overhead cost ÷ Estimated direct labor-hours = $838,366 ÷ 147,200 hours = $5.69
a2.
Using this overhead rate, the unit product cost of each product would be:
MANUFACTURING OVERHEAD
PRODUCT K-7 1 HOURS
PRODUCT L-15 3 HOURS
5.69
17.07
b. The activity rates for each activity cost pool are as follows:
The overhead cost charged to Product K-7 is:
The overhead cost charged to Product L-15 is:
477,028.80
Overhead cost per unit:
Product K-7:361,337.20 ÷ 92,000 units = 3.92 per unit
Product L-15: 477,028.80 ÷ 18,400 units = 25.92 per unit
Using activity based costing, the unit product cost of each product would be:
MANUFACTURING OVERHEAD
PRODUCT K-7 1 HOURS
PRODUCT L-15 3 HOURS
3.92
25.92
K-7 L-15 DIRECT MATERIAL 11 32 DIRECT LABOUR 8 6MANUFACTURING OVERHEAD
PRODUCT K-7 1 HOURS
PRODUCT L-15 3 HOURS
5.69
17.07
TOTAL UNIT COST 24.69 55.07