Matchbox Manufacturing has a traditional costing system in which it applies manu
ID: 2594501 • Letter: M
Question
Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Utility and Super, about which it has provided the following data:
Utility
Super
Direct materials per unit
$34.10
$52.70
Direct labor per unit
$16.10
$39.10
Direct labor-hours per unit
0.70
1.70
Annual production
30,000
10,000
The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
Activities and Activity Measures
Estimated Overhead Cost
Assembling products (DLHs)
$608,000
Preparing batches (batches)
197,600
Axial milling (MHs)
722,000
Total
$1,527,600
Utility
Super
Total
Assembling products
21,000
17,000
38,000
Preparing batches
456
1,520
1,976
Axial milling
570
874
1,444
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Matchbox Manufacturing has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, Utility and Super, about which it has provided the following data:
Utility
Super
Direct materials per unit
$34.10
$52.70
Direct labor per unit
$16.10
$39.10
Direct labor-hours per unit
0.70
1.70
Annual production
30,000
10,000
The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
Activities and Activity Measures
Estimated Overhead Cost
Assembling products (DLHs)
$608,000
Preparing batches (batches)
197,600
Axial milling (MHs)
722,000
Total
$1,527,600
Utility
Super
Total
Assembling products
21,000
17,000
38,000
Preparing batches
456
1,520
1,976
Axial milling
570
874
1,444
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Explanation / Answer
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
Manufacturing overhead per hour = 1527600/38000
Manufacturing overhead per hour = 40.2 per hour
Utility = 30000*.7*40.2/30000 = 28.14 per unit
Super = 10000*1.7*40.2/10000= 68.34 per unit
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Overhead Amount Cost driver Expected activity Activity rate Utility Super Assembling products 608000 DLH 38000 16 per DLH 336000 272000 Preparing batches 197600 Batches 1976 100 per batches 45600 152000 Axial milling 722000 Mhs 1444 500 per MHs 285000 437000 Total 666600 861000 Unit 30000 10000 Overhead per unit 22.22 86.10