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Problem 8-29(appendix – 8B) Activity – based costing as an Alternative to Traditional product Costing[LOT]

Problem 8-29(appendix – 8B) Activity – based costing as an Alternative to Traditional product Costing[LOT]

Erie, Inc manufacturers two models of high-pressure steam valves. The XR7 model and the ZD5 model. Data regarding the two products follow
Product Direct labor hours Annual production Total Direct Labor Hours
XR7 0.2 DLHs per unit 25,000 units 5,000 DLHs
ZD5 0.4 DLHs per unit 46,000 units 16,400 DLHs
23,400 DLHs
Additional information about the company follows:
a. Product XR7 requires $37 in direct materials per unit, and product ZD5 requires $21.
b. The direct labor rate is $60 per hour
c. The company has always used direct labor hours as the b for applying manufacturing overhead cost to products manufacturing overhead totals $2,335,800 per year.
d. Product XR7 is more complex to manufacture that product ZD5 and requires the use of a special milling machine.
e. Because of the special work required in (d) above, the company is considering the use of activity based ting to apply overhead cost to products. Three activity cost pools have been determined and the first state allocations have been completed. Data concerning these activity cost pools appear below
Activity Cost Pool Activity measure Estimated Total Cost XR7 ZD5 Total
Machine setups Number of setups $148,000 120 80 200
Special milling Machine hours 267,000 1,030 0 1,030
General factory Direct labor-hours 1,920,000 4,800 19,200 24,000
$2,335,800
Requirement 1
Assume that the company continues to use direct labor-hours as the base for applying overhead cost to products
(a) Compute the predetermined overhead rate (Round your answer to the nearest dollar amount. Omit the “$” sign in your responses)
Predetermined overhead rate $____________Per DLH
(b) Determine the unit product cost of each product (Omit the “$” sign in your response. Round your answers to 2 decimal places
Model
XR7 ZD5
Total unit product Cost  $_____________ $_________
 
Requirement 2:
Assume that the company decides to use activity-based costing to apply overhead cost to products.
(a) Compute the activity rate for each activity cost pool. Also compute the amount of overhead cost that would be applied to each product. (Leave no cells blank – be certain to enter “0” whenever required. Round the overhead cost per unit to 2 decimal places. Omit the “$” sign in your response.)
Activity cost pool Activity Rate
Machine setups $____________Per setup
Special milling $____________Per MH
General factory $____________Per DLH
Model XR7:
Activity cost Pool Overhead Applied
Machine setups $__________
Special milling ___________
General factory ___________
Total manufacturing overhead cost $__________
Overhead cost per unit $__________
ModelZD5
Activity Cost pool Overhead Applied
Machine setups $_______
Special milling _______
General factory _______
Total manufacturing overhead cost $______
Overhead cost per unit _______
(b) Determine then unit product cost of each product. (omit the”$ sing in your response. Round your answers to 2 decimal places.)
Unit product cost of Model XR7 $_____________________________
Unit product cost of Model ZD5 $___________________________
 
File name: Erie-Inc-manufacturers.doc File type: application/msword Price: $10

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