P8.35 Traditional and activity-based product costing: manufacturer Pristine Ltd manufactures two types of storage

Question

P8.35 Traditional and activity-based product costing: manufacturer Pristine Ltd manufactures two types of storage cabinets, deluxe and executive, and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows. LOB.5 8.6 Direct material card Direct bour cost Hudected volume units Deluxe 552.50 30.00 8000 Executive 590.00 30.00 15000 The management accountant has determined that the firm's overhead can be identified with three activities: manufacturing setups, machine processing and product shipping. Data on the number of setups, machine hours and outgoing shipments, which are the activities three respective cost drivers, follow: Deluxe Executive Total 30 80 Setups Machine hours Outgoing shipments 16100 100 22.500 75 39500 175 The firm's total overhead of $4620000 is subdivided as follows: manufacturing setups $1008000, machine processing, $2772000; and product shipping. $840000 Required: 1. Calculate the unit manufacturing cost of

Help In Homework · Accepted Answer

1.Unit manufacturing cost under the current traditional costing of Ohs Deluxe Executive Total Direct materials 52.5 90 Direct labor 30 30 Mfg. OH $ 120 per m/c hr.*16000 m/c hrs./8000 units 240 $ 120 per m/c hr.*22500 m/c hrs./15000 units 180 Total Mfg.cost/unit 322.5 300 Budgeted units 8000 15000 Total MOHs No.of Units*MOH/unit) 1920000 2700000 4620000 2.Unit manufacturing cost under the ABC of Ohs Allocation of Ohs based on activities level Deluxe Executive Mfg. set-up costs 50/80*1008000= 630000 30/80*1008000= 378000 1008000 M/c processing 16000/38500*2772000= 1152000 22500/38500*2772000= 1620000 2772000 Product shipping 100/175*840000= 480000 75/175*840000= 360000 840000 Total MOH 2262000 2358000 4620000 No.of units 8000 15000 MOH/unit 282.75 157.2 (Total MOH /No.of units) Direct materials 52.5 90 Direct labor 30 30 Total Mfg. costs/unit 365.25 277.2 3. Total mfg. costs: Deluxe Executive as per traditional csoting 322.5 300 as per ABC 365.25 277.2 Deluxe is Undercosted by(365.25-322.5) 42.75 Executive is Overcosted by(300-277.20) 22.8 4.Net selling price of the Deluxe after discount will be 390-45= 345 where its full mfg. cost under activity based costing is 365.25 Hence, offering discounts is not advisable.

Why Choose Us?

0% AI Guarantee

24/7 Support

Plagiarism Free

Expert Tutors

100% Confidential

On-Time Delivery

P8

Expert Solution

Archived Solution

1.Unit manufacturing cost under the current traditional costing of Ohs
	Deluxe	Executive	Total
Direct materials	52.5	90
Direct labor	30	30
Mfg. OH
$ 120 per m/c hr.*16000 m/c hrs./8000 units	240
$ 120 per m/c hr.*22500 m/c hrs./15000 units		180
Total Mfg.cost/unit	322.5	300

Budgeted units	8000	15000
Total MOHs
No.of Units*MOH/unit)	1920000	2700000	4620000

2.Unit manufacturing cost under the ABC of Ohs
Allocation of Ohs based on activities level
	Deluxe		Executive
Mfg. set-up costs	50/80*1008000=	630000	30/80*1008000=	378000	1008000
M/c processing	16000/38500*2772000=	1152000	22500/38500*2772000=	1620000	2772000
Product shipping	100/175*840000=	480000	75/175*840000=	360000	840000
Total MOH		2262000		2358000	4620000
No.of units		8000		15000
MOH/unit		282.75		157.2
(Total MOH /No.of units)
Direct materials		52.5		90
Direct labor		30		30
Total Mfg. costs/unit		365.25		277.2

3. Total mfg. costs:
	Deluxe	Executive
as per traditional csoting	322.5	300
as per ABC	365.25	277.2
Deluxe is Undercosted by(365.25-322.5)	42.75
Executive is Overcosted by(300-277.20)		22.8