Ellix Company manufactures two models of ultra-high fidelity speakers—the X200 model and the X99 model. Data regarding the two products follow: Product Direct Labor-Hours Annual Production Total Direct Labor-Hours X200 0.4 DLHs per unit 17,000 units 6,800 DLHs X99 0.6 DLH per unit 40,000 units 24,000 DLHs 30,800 DLHs Additional information about the company follows: Model X200 requires $35 in direct materials per unit, and model X99 requires $24. The direct labor workers are paid $20 per hour. The company has always used direct labor-hours as the allocation base for applying manufacturing overhead cost to products. Model X200 is more complex to manufacture than model X99 and requires special equipment. Because of the special work required in (d) above, the company is considering an activity-based absorption costing that applies manufacturing overhead cost to products using three activity cost pools: Activity Cost Pool Activity Measure Estimated Total Cost Estimated Total Activity X200 X99 Total Machine setups Number of setups $ 185,000 100 150 250 Special processing Machine-hours 385,000 1,100 0 1,100 General factory Direct labor-hours 1,540,000 6,800 24,000 30,800 $ 2,110,000 Required: Assume the company continues applying overhead costs to products using direct labor-hours. Compute the plantwide predetermined overhead rate. Compute each model's unit product cost. Assume the company decides to apply overhead cost to products using activity-based absorption costing. Compute the activity rate for each activity cost pool and determine the amount of overhead cost applied to each model. Compute each model's unit product cost.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 1CE: Cicleta Manufacturing has four activities: receiving materials, assembly, expediting products, and...

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Ellix Company manufactures two models of ultra-high fidelity speakers—the X200 model and the X99 model. Data regarding the two products follow:

Product	Direct Labor-Hours	Annual Production	Total Direct Labor-Hours
X200	0.4	DLHs per unit	17,000	units	6,800	DLHs
X99	0.6	DLH per unit	40,000	units	24,000	DLHs
					30,800	DLHs

Additional information about the company follows:

Model X200 requires $35 in direct materials per unit, and model X99 requires $24.
The direct labor workers are paid $20 per hour.
The company has always used direct labor-hours as the allocation base for applying manufacturing overhead cost to products.
Model X200 is more complex to manufacture than model X99 and requires special equipment.

Because of the special work required in (d) above, the company is considering an activity-based absorption costing that applies manufacturing overhead cost to products using three activity cost pools:

Activity Cost Pool	Activity Measure	Estimated Total Cost	Estimated Total Activity
X200	X99	Total
Machine setups	Number of setups	$ 185,000	100	150	250
Special processing	Machine-hours	385,000	1,100	0	1,100
General factory	Direct labor-hours	1,540,000	6,800	24,000	30,800
		$ 2,110,000

Required:

Assume the company continues applying overhead costs to products using direct labor-hours.
1. Compute the plantwide predetermined overhead rate.
2. Compute each model's unit product cost.
Assume the company decides to apply overhead cost to products using activity-based absorption costing.
1. Compute the activity rate for each activity cost pool and determine the amount of overhead cost applied to each model.
2. Compute each model's unit product cost.

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