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Hammer Company plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows: Department Production support Factory Overhead $ 1,225,000 Production(factory overhead only) Total cost 175,000 1,400,000 The company determined that it performed four major activities in the Production Support Department. These activities, along with their budgeted activity costs, are as follows: Production support Activites Setup Production control Quality control Materials management Budgeted Activity Cost $ 428,750 245,000 183,750 367,500 1,225,000 Total Hammer estimated the following activity-base usage and units produced for each of its three products: Number of Direct labor Products Setups units hrs Production order Materials Inspections. Requisitions LCD TV 10,000 25,000 Tablet Smartphone 2,000 10,000 50,000 140,000 Total cost 62,000 175,000 24585 80 35 320 40 40 400 5 0 30 125 75 750 REQUIRED: 1. Determine the factory overhead cost per unit for the LCD TV and Tablet under the single plantwide factory overhead rate method. Use direct labor hours as the activity base. 2. Determine the factory overhead cost per unit for the LCD TV and Tablet under activity-based costing. Round to two decimal places. 3. Which method provides more accurate product costing? Why?

Hammer Company plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows: Department Production support Factory Overhead $ 1,225,000 Production(factory overhead only) Total cost 175,000 1,400,000 The company determined that it performed four major activities in the Production Support Department. These activities, along with their budgeted activity costs, are as follows: Production support Activites Setup Production control Quality control Materials management Budgeted Activity Cost $ 428,750 245,000 183,750 367,500 1,225,000 Total Hammer estimated the following activity-base usage and units produced for each of its three products: Number of Direct labor Products Setups units hrs Production order Materials Inspections. Requisitions LCD TV 10,000 25,000 Tablet Smartphone 2,000 10,000 50,000 140,000 Total cost 62,000 175,000 24585 80 35 320 40 40 400 5 0 30 125 75 750 REQUIRED: 1. Determine the factory overhead cost per unit for the LCD TV and Tablet under the single plantwide factory overhead rate method. Use direct labor hours as the activity base. 2. Determine the factory overhead cost per unit for the LCD TV and Tablet under activity-based costing. Round to two decimal places. 3. Which method provides more accurate product costing? Why?

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 7E: The management of Nova Industries Inc. manufactures gasoline and diesel engines through two...
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Hammer Company plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows: Department Production support Factory Overhead $ 1,225,000 Production(factory overhead only) Total cost 175,000 1,400,000 The company determined that it performed four major activities in the Production Support Department. These activities, along with their budgeted activity costs, are as follows: Production support Activites Setup Production control Quality control Materials management Budgeted Activity Cost $ 428,750 245,000 183,750 367,500 1,225,000 Total Hammer estimated the following activity-base usage and units produced for each of its three products: Number of Direct labor Products Setups units hrs Production order Materials Inspections. Requisitions LCD TV 10,000 25,000 Tablet Smartphone 2,000 10,000 50,000 140,000 Total cost 62,000 175,000 24585 80 35 320 40 40 400 5 0 30 125 75 750 REQUIRED: 1. Determine the factory overhead cost per unit for the LCD TV and Tablet under the single plantwide factory overhead rate method. Use direct labor hours as the activity base. 2. Determine the factory overhead cost per unit for the LCD TV and Tablet under activity-based costing. Round to two decimal places. 3. Which method provides more accurate product costing? Why?
Transcribed Image Text:Hammer Company plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows: Department Production support Factory Overhead $ 1,225,000 Production(factory overhead only) Total cost 175,000 1,400,000 The company determined that it performed four major activities in the Production Support Department. These activities, along with their budgeted activity costs, are as follows: Production support Activites Setup Production control Quality control Materials management Budgeted Activity Cost $ 428,750 245,000 183,750 367,500 1,225,000 Total Hammer estimated the following activity-base usage and units produced for each of its three products: Number of Direct labor Products Setups units hrs Production order Materials Inspections. Requisitions LCD TV 10,000 25,000 Tablet Smartphone 2,000 10,000 50,000 140,000 Total cost 62,000 175,000 24585 80 35 320 40 40 400 5 0 30 125 75 750 REQUIRED: 1. Determine the factory overhead cost per unit for the LCD TV and Tablet under the single plantwide factory overhead rate method. Use direct labor hours as the activity base. 2. Determine the factory overhead cost per unit for the LCD TV and Tablet under activity-based costing. Round to two decimal places. 3. Which method provides more accurate product costing? Why?
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