EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 1 hour of direct labor time per unit to manufacture compared to 0.5 hour of direct labor time for Product S. Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labor-hours. The company estimated it would incur $500,000 in manufacturing overhead costs and produce 60,000 units of Product S and 10,000 units of Product W during the current year. Unit cost for materials and direct labor are: Direct material.. Direct labor ... Product S Product W $10 $8 $24 $12 ...... Required: a) Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Estimated Overhead Expected Activity Product S Product W 1,200 Total 2,000 Activity Cost Pools Machine setups required. Purchase orders issued. Machine-hours required.. Maintenance requests issued... Costs $200,000 43,500 104,000 152,500 $500,000 800 500 100 600 3,000 860 10,000 1,140 13,000 2,000 Determine the activity rate for each of the four activity cost pools. c) Using the activity rates and other data from the problem, determine the unit cost of each product. d) Explain why the conventional and activity-based cost assignments differ.
EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 1 hour of direct labor time per unit to manufacture compared to 0.5 hour of direct labor time for Product S. Product W is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labor-hours. The company estimated it would incur $500,000 in manufacturing overhead costs and produce 60,000 units of Product S and 10,000 units of Product W during the current year. Unit cost for materials and direct labor are: Direct material.. Direct labor ... Product S Product W $10 $8 $24 $12 ...... Required: a) Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below: Estimated Overhead Expected Activity Product S Product W 1,200 Total 2,000 Activity Cost Pools Machine setups required. Purchase orders issued. Machine-hours required.. Maintenance requests issued... Costs $200,000 43,500 104,000 152,500 $500,000 800 500 100 600 3,000 860 10,000 1,140 13,000 2,000 Determine the activity rate for each of the four activity cost pools. c) Using the activity rates and other data from the problem, determine the unit cost of each product. d) Explain why the conventional and activity-based cost assignments differ.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:EMD Corporation manufactures two products, Product S and Product W. Product W
is of fairly recent origin, having been developed as an attempt to enter a market
closely related to that of Product W. Product W is the more complex of the two
products, requiring 1 hour of direct labor time per unit to manufacture compared to
0.5 hour of direct labor time for Product S. Product W is produced on an automated
production line.
Overhead is currently assigned to the products on the basis of direct labor-hours. The
company estimated it would incur $500,000 in manufacturing overhead costs and
produce 60,000 units of Product S and 10,000 units of Product W during the current
year. Unit cost for materials and direct labor are:
Direct material..
Direct labor ...
Product S Product W
$10
$8
$24
$12
......
Required:
a) Compute the predetermined overhead rate under the current method of allocation
and determine the unit product cost of each product for the current year.
b) The company's overhead costs can be attributed to four major activities. These
activities and the amount of overhead cost attributable to each for the current
year are given below:
Transcribed Image Text:Estimated
Overhead
Expected Activity
Product S Product W
1,200
Total
2,000
Activity Cost Pools
Machine setups required.
Purchase orders issued.
Machine-hours required..
Maintenance requests issued...
Costs
$200,000
43,500
104,000
152,500
$500,000
800
500
100
600
3,000
860
10,000
1,140
13,000
2,000
Determine the activity rate for each of the four activity cost pools.
c) Using the activity rates and other data from the problem, determine the unit cost
of each product.
d) Explain why the conventional and activity-based cost assignments differ.
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