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In all computations involving dollars in the following requirements, round off your answer
to the nearest whole cent.
a. The company currently uses a traditional costing method in which overhead is applied
to products based solely on direct labor-hours. Compute the company’s predetermined
overhead rate under this costing method.
b. How much overhead would be applied to each product under the company’s traditional
costing method?
c. Determine the unit product cost of each product under the company’s traditional
costing method.
d. Compute the activity rates under the activity-based costing system.
e. Determine how much overhead would be assigned to each product under the activity-
based costing system.
f. Determine the unit product cost of each product under the activity-based costing
method.
g. What is the difference between the overhead per unit under the traditional costing
method and the activity-based costing system for each of the two products?
h. What is the difference between the unit product costs under the under the traditional
costing method and the activity-based costing system for each of the two products?
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215.
Gribbins, Inc., manufactures and sells two products: Product O1 and Product Z4. Data
concerning the expected production of each product and the expected total direct labor-
hours (DLHs) required to produce that output appear below:
Expected
Production
Direct Labor-Hours Per
Unit
Total Direct Labor-
Hours
Product O1
900
6.0
5,400
Product Z4
500
4.0
2,000
Total direct labor-
hours
7,400
The direct labor rate is $23.00 per DLH. The direct materials cost per unit for each
product is given below:
Direct Materials Cost per Unit
Product O1
$248.20
Product Z4
$255.00
The company is considering adopting an activity-based costing system with the following
activity cost pools, activity measures, and expected activity:
Estimated
Expected Activity
Activity Cost Pools
Activity Measures
Overhead Cost
Product O1
Product Z4
Total
Labor-related
DLHs
$148,740
5,400
2,000
7,400
Machine setups
Setups
49,399
300
400
700
General factory
MHs
558,012
4,600
4,500
9,100
$756,151
Required:
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What is the difference between the unit product costs under the under the traditional
costing method and the activity-based costing system for each of the two products?
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216.
Swagg Jewelry Corporation manufactures custom jewelry. In the past, Swagg has been
using a traditional overhead allocation system based solely on direct labor-hours. Sensing
that this system was distorting costs and selling prices, Swagg has decided to switch to an
activity-based costing system using three activity cost pools. Information on these activity
cost pools are as follows:
Activity Cost Pool
Estimated Overhead Cost
Expected Activity
Labor Related
$40,000
8,000
direct labor-hours
Machine Related
$50,000
12,500
machine hours
Quality Control
$12,000
800
inspections
Job #309 incurred $900 of direct material, 30 hours of direct labor at $40 per hour, 80
machine hours, and 5 inspections.
Required:
a. What is the cost of the job under the activity-based costing system?
b. Relative to the activity-based costing system, would Job #309 have been overcosted or
undercosted under the traditional system and by how much?
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217.
Hammer, Inc., manufactures and sells two products: Product W7 and Product I5. Data
concerning the expected production of each product and the expected total direct labor-
hours (DLHs) required to produce that output appear below:
Expected
Production
Direct Labor-Hours Per
Unit
Total Direct Labor-
Hours
Product W7
400
5.0
2,000
Product I5
500
2.0
1,000
Total direct labor-
hours
3,000
The direct labor rate is $27.10 per DLH. The direct materials cost per unit for each
product is given below:
Direct Materials Cost per Unit
Product W7
$233.10
Product I5
$209.90
The company is considering adopting an activity-based costing system with the following
activity cost pools, activity measures, and expected activity:
Estimated
Expected Activity
Activity Cost Pools
Activity Measures
Overhead Cost
Product W7
Product I5
Total
Labor-related
DLH
$123,810
2,000
1,000
3,000
Production orders
Orders
22,178
600
700
1,300
General factory
MHs
359,920
4,500
4,300
8,800
$505,908
Required:
What is the difference between the unit product costs under the under the traditional
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costing method and the activity-based costing system for each of the two products?