Cabell Company manufactures two products, Product C and Product D. The company e
ID: 2571568 • Letter: C
Question
Cabell Company manufactures two products, Product C and Product D. The company estimated it would incur $113,600 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period's operations appear below:
Product C
Product D
Estimated volume
2,400 units
1,000 units
Direct materials cost per unit
$10.00
$20.00
Direct labor hours per unit
0.50 hours
0.80 hours
The average direct labor cost is $20 per hour.
a. Compute the predetermined overhead rate under the current method, and determine the TOTAL PER UNIT cost of each product for the current year.
POHR: _________
Cost of Product C: _________
Cost of Product D: _________
b. 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 labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Expected Activity
Activity cost pool
Est. O/H Cost
Product C
Product D
Total
Machine setups
$8,100
120
150
270
Purchase orders
84,500
630
1,060
1,690
General factory
21,000
700
1400
2,100
113,600
Determine the TOTAL PER UNIT cost of each product for the current period using the activity-based costing approach.
Cost of Product C: _________
Cost of Product D: _________
Product C
Product D
Estimated volume
2,400 units
1,000 units
Direct materials cost per unit
$10.00
$20.00
Direct labor hours per unit
0.50 hours
0.80 hours
Explanation / Answer
a. Compute the predetermined overhead rate under the current method, and determine the TOTAL PER UNIT cost of each product for the current year.
Estimated labour hour = (2400*.50+1000*.80) = 2000 hours
Predetermine overhead rate = Estimated manufacturing overhead/estimated labour hours
= 113600/2000
Predetermine overhead raate = 56.8 per hour
Calculate unit cost :
b. 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 labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Product C Product D Direct material 24000 20000 Direct labour 24000 16000 Overhead 68160 45440 Total cost 116160 81440 Unit 2400 1000 Unit cost 48.40 81.44