Please explain your work for part B. Thank you! Cabat Company manufactures two p
ID: 2589440 • Letter: P
Question
Please explain your work for part B.
Thank you!
Cabat Company manufactures two products, Product C and Product D. The company estimated it would incur $197,910 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 4,800 unit:s Product D 4,000 unit:s Estimated volume Direct labor-hours per unit Direct materials cost per unit Direct labor cost per unit 3.20 hours 2.80 hour 21.60 $18.80 35.70 $15.20 Requried a-1. Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.) Predetermined overhead rate$ 7.45 per DLH a-2. Determine the unit product cost of each product for the current year. (Do not round your intermediate calculations. Round your final answer to 2 decimal places.) Product C Product D Unit product cost$ 64.24 $ 71.76 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 beloww: Estimated Overhead Expected Activity Total Activity Cost Pools Machine setups Purchase orders General factory Costs Product C Product D 310 1,220 15,360 320 1,560 11,200 630 2,780 26,560 $ 14,190 81,240 102,480 Total $197,910 Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.) Product C Product D Unit product costExplanation / Answer
Cabat Company
b.determination of unit product cost of each product for the current period using the activity – based costing approach:
According to the activity based costing approach, overhead costs of each activity are applied to each product in accordance to their respective usage of that particular activity.
Step 1: To determine the proportion of usage by each product of a specific activity, as shown below
Expected Activity
Activity Cost Pools
Product C
Product D
Total
Machine Setups
310
320
630
percentage
49.21%
50.79%
100%
Purchase Orders
1,220
1,560
2,780
percentage
43.88%
56.11%
100%
General Factory
15,360
11,200
26,560
percentage
57.83%
42.17%
100%
For instance, Consider the machine setups, we have determined that Product C uses 49.21% of machine setups.
Step 2:
Activity Cost Pool
Estimated Overhead Cost
Product C
Product D
Machine Setups
$14,190
$6,983
$7,207
Purchase Orders
$81,240
$35,656
$45,584
General Factory
$102,480
$59,264
$43,216
Total
$197,910
$101,903
$96,007
Number of units
4,800
4,000
estimated overhead cost per unit
$21.23
$24.00
So, of the total estimated overhead cost of $14,190, we allocate 49.21% to Product C and 50.79% to Product D, respectively as shown below,
Overhead cost for machine setups = $14,190
Product C uses 49.21%, hence estimated overhead allocated to Product C = $14,190 x 49.21% = $6,983
Estimated overhead cost allocated to Product D = $14,190 x 50.79% = $7,207
Likewise, estimated overhead costs for other activity pools are assigned to Product C and Product D as follows,
Purchase orders –
Estimated overhead cost = $81,240
Product C = 81,240 x 43.89% = $35,656
Product D = 81,240 x 56.11% = $45,584
General Factory –
Estimated overhead cost = $102,480
Product C = 102,480 x 57.83% = $59,264
Product D = 102,480 x 42.17% = $43,216
Step 3:
Now total all the overhead costs for each product.
Step 4:
Determine the overhead cost per unit by dividing the total overhead allocated to a product by the number of units produced of that product.
Step 5: Determine the unit product cost.
Unit Product Cost
Product C
Product D
Direct materials cost per unit
$21.60
$35.70
Direct Labor cost per unit
$18.80
$15.20
estimated overhead cost per unit
$21.23
$24.00
Unit product cost
$61.63
$74.90
Expected Activity
Activity Cost Pools
Product C
Product D
Total
Machine Setups
310
320
630
percentage
49.21%
50.79%
100%
Purchase Orders
1,220
1,560
2,780
percentage
43.88%
56.11%
100%
General Factory
15,360
11,200
26,560
percentage
57.83%
42.17%
100%