Q5. ABC Corporation manufactures two products, Product M and Product N. Product N is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product N. Product N is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product M. Product N 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 SAR 500,000 in manufacturing overhead costs and produce 10,000 units of Product N and 60,000 units of Product M during the current year. Unit cost for materials and direct labor are: Direct material...... Direct labor Product M SAR 10 SAR 8 Product N SAR 24 SAR 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: Activity cost Pools Machine setups required ..... Purchase orders issued........ Machine-hours required ...... Maintenance requests issued... Estimated Overhead Costs SAR 200,000 Expected Activity Product M Product N Total 800 43,500 500 104,000 3,000 152,500 860 SAR 500,000 1,200 100 10,000 1,140 2,000 600 13,000 2,000 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.
Q5. ABC Corporation manufactures two products, Product M and Product N. Product N is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product N. Product N is the more complex of the two products, requiring one hour of direct labor time per unit to manufacture compared to one-half hour of direct labor time for Product M. Product N 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 SAR 500,000 in manufacturing overhead costs and produce 10,000 units of Product N and 60,000 units of Product M during the current year. Unit cost for materials and direct labor are: Direct material...... Direct labor Product M SAR 10 SAR 8 Product N SAR 24 SAR 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: Activity cost Pools Machine setups required ..... Purchase orders issued........ Machine-hours required ...... Maintenance requests issued... Estimated Overhead Costs SAR 200,000 Expected Activity Product M Product N Total 800 43,500 500 104,000 3,000 152,500 860 SAR 500,000 1,200 100 10,000 1,140 2,000 600 13,000 2,000 Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Q5. ABC Corporation manufactures two products, Product M and
Product N. Product N is of fairly recent origin, having been
developed as an attempt to enter a market closely related to that of
Product N. Product N is the more complex of the two products,
requiring one hour of direct labor time per unit to manufacture
compared to one-half hour of direct labor time for Product M.
Product N 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 SAR
500,000 in manufacturing overhead costs and produce 10,000 units
of Product N and 60,000 units of Product M during the current
year. Unit cost for materials and direct labor are:
Direct material......
Direct labor
Product M
SAR 10
SAR 8
Product N
SAR 24
SAR 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:
Activity cost Pools
Machine setups required .....
Purchase orders issued........
Machine-hours required ......
Maintenance requests issued...
Estimated
Overhead
Costs
SAR 200,000
Expected Activity
Product M Product N
800
43,500 500
104,000 3,000
152,500 860
SAR 500,000
1,200
100
10,000
1,140
Total
2,000
600
13,000
2,000
Using the data above and an activity-based costing approach,
determine the unit product cost of each product for the current
year.
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