Model N 800 XL Model N 500 Activity Cost Pool Machine setups Special processing General factory Direct Labor- Hours per Unit. 3.0 1.0 Activity Measure Number of setups Machine-hours Direct labor-hours Annual Production 4,000 units 13,000 units Additional information about the company follows: a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $30. b. The direct labor wage rate is $17 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equip Consequently, the company is considering the use of activity-based costing to assign manufacturing overhea products. Three activity cost pools have been identified as follows: Activity Measure Number of setups Machine-hours Direct labor-hours Total Direct Labor-Hours Model N 800 XL 150 20,000 12,000 12,000 13,000 25,000 Estimated Overhead Cost $ 520,000 235,000 1,445,000 $ 2,200,000 Expected Activity Model N 500 250 0 13,000 Total 400 20,000 25,000
Model N 800 XL Model N 500 Activity Cost Pool Machine setups Special processing General factory Direct Labor- Hours per Unit. 3.0 1.0 Activity Measure Number of setups Machine-hours Direct labor-hours Annual Production 4,000 units 13,000 units Additional information about the company follows: a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $30. b. The direct labor wage rate is $17 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equip Consequently, the company is considering the use of activity-based costing to assign manufacturing overhea products. Three activity cost pools have been identified as follows: Activity Measure Number of setups Machine-hours Direct labor-hours Total Direct Labor-Hours Model N 800 XL 150 20,000 12,000 12,000 13,000 25,000 Estimated Overhead Cost $ 520,000 235,000 1,445,000 $ 2,200,000 Expected Activity Model N 500 250 0 13,000 Total 400 20,000 25,000
Model N 800 XL Model N 500 Activity Cost Pool Machine setups Special processing General factory Direct Labor- Hours per Unit. 3.0 1.0 Activity Measure Number of setups Machine-hours Direct labor-hours Annual Production 4,000 units 13,000 units Additional information about the company follows: a. Model N 800 XL requires $70 in direct materials per unit, and Model N 500 requires $30. b. The direct labor wage rate is $17 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equip Consequently, the company is considering the use of activity-based costing to assign manufacturing overhea products. Three activity cost pools have been identified as follows: Activity Measure Number of setups Machine-hours Direct labor-hours Total Direct Labor-Hours Model N 800 XL 150 20,000 12,000 12,000 13,000 25,000 Estimated Overhead Cost $ 520,000 235,000 1,445,000 $ 2,200,000 Expected Activity Model N 500 250 0 13,000 Total 400 20,000 25,000
Assume that the company continues to use direct labor hours as the base for applying overhead cost to products. Compute the unit production cost for each model (model N 800XL and model N500)
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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