Chapter 2.A, Problem 3E

EXERCISE 2A-3 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO2-S

Stillicum Corporation makes ultralightweight backpacking tents. Data concerning the company’s two product lines appear below:

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Required:

1. Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.
2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:

Expected Activity
Activity Cost Pools (and Activity Measures)	Estimated Overhead Cost	Deluxe	Standard	Total
Supporting direct labor (direct labor-hours)....	$200,000	10,000	40,000	50,000
Batch setups (setups) ……………………….	75,000	200	100	300
Safety testing (tests) …………………………	50,000	30	70	100
Total manufacturing overhead cost ………….	$325,000

Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.