Ergaster Corporation manufactures a variety of products. In the past, Ergaster has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Ergaster has decided to switch to an activity based costing system for manufacturing overhead costs using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year is as follows: (see image). Under the activity-based costing system, what would be the selling price of one unit of Model #36?
Ergaster Corporation manufactures a variety of products. In the past, Ergaster has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Ergaster has decided to switch to an activity based costing system for manufacturing overhead costs using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year is as follows: (see image). Under the activity-based costing system, what would be the selling price of one unit of Model #36?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ergaster Corporation manufactures a variety of products. In the past, Ergaster has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Ergaster has decided to switch to an activity based costing system for
Transcribed Image Text:Activity cost pool Estimated Activity
Machine Setups
Quality Control
Other Overhead 30,000 machine hours
Estimated Overhead Cost
P150,000
180,000
480,000
400 setups
1,500 inspections
Information (on a per unit basis) related to three popular products at Ergaster are as follows:
Model #19
Model #36
Model #58
Direct material cost
Direct labor cost
Number of setups
Number of inspections
P400
P540
P310
P810
P600
P220
3
1
1
3
Number of machine hours
4
8
10
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