Carolina Industries manufactures two products, Product C and Product D. The company estimated it would incur $160,790 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below: Product C Product D Estimated volume 3,400 units 4,800 units Direct Labour Hours per unit 1.40 hours 1.90 hours Direct Materials cost per unit 7.40 12.70 Direct Labour Cost per unit 14.00 19.00 Required: a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year. 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 labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below: Estimated Expected Activity Activity Cost Pool overhead costs Product C Product D Total Machine setups 12,190 80 150 230 purchase orders 79,200 730 920 1,650 General factory 69,400 4,760 9,120 13,880 Total 160,790 Determine the overhead rates for each activity centre and the unit product cost of each product for the current period using the activity-based costing approach.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Carolina Industries manufactures two products, Product C and Product D. The company estimated it would incur $160,790 in
Product C Product D
Estimated volume 3,400 units 4,800 units
Direct Labour Hours per unit 1.40 hours 1.90 hours
Direct Materials cost per unit 7.40 12.70
Direct Labour Cost per unit 14.00 19.00
Required:
a) Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
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 labour hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Estimated Expected Activity
Activity Cost Pool overhead costs Product C Product D Total
Machine setups 12,190 80 150 230
purchase orders 79,200 730 920 1,650
General factory 69,400 4,760 9,120 13,880
Total 160,790
Determine the overhead rates for each activity centre and the unit product cost of each product for the current period using the activity-based costing approach.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
