Guinta Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, O48C and G94Z, about which it has provided the following data:
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| O48C | G94Z | |||
| Direct materials per unit | $ | 24.80 | $ | 56.30 |
| Direct labor per unit | $ | 24.10 | $ | 63.20 |
| Direct labor-hours per unit | 0.70 | 2.40 | ||
| Annual production (units) | 38,800 | 18,300 | ||
The company's estimated total manufacturing overhead for the year is $3,224,840 and the company's estimated total direct labor-hours for the year is 71,080.
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The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
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| Activities and Activity Measures | Estimated Overhead Cost | |
| Supporting direct labor (DLHs) | $ | 426,480 |
| Setting up machines (setups) | 723,840 | |
| Parts administration (part types) | 2,074,520 | |
| Total | $ | 3,224,840 |
| Activities | O48C | G94Z | Total | |
| Supporting direct labor | 27,160 | 43,920 | 71,080 | |
| Setting up machines | 800 | 3,360 | 4,160 | |
| Parts administration | 2,460 | 1,880 | 4,340 | |
| Required: | |
| a. |
Determine the unit product cost of each of the company's two products under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)
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| O48C | G94Z | |
| Unit product cost | $ | $ |
| b. |
Determine the unit product cost of each of the company's two products under activity-based costing system. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)
|
| O48C | G94Z | |
| Unit product cost | $ | $ |
Explanation:
a.
Traditional Unit Product Costs
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Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $3,224,840 ÷ 71,080 DLHs = $45.37 per DLH
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| O48C | G94Z | ||||
| Direct materials | $ | 24.80 | $ | 56.30 | |
| Direct labor | 24.10 | 63.20 | |||
| Manufacturing overhead (0.70 DLHs × $45.37 per DLH; 2.40 DLHs × $45.37 per DLH) | 31.76 | 108.89 | |||
| Unit product cost | $ | 80.66 | $ | 228.39 | |
b.
ABC Unit Product Costs.
| Estimated Overhead Cost | Total Expected Activity | Activity Rate | ||||||
| Supporting direct labor | $ | 426,480 | 71,080 | DLHs | $ | 6 | per DLH | |
| Setting up machines | $ | 723,840 | 4,160 | setups | 174 | per setup | ||
| Parts administration | $ | 2,074,520 | 4,340 | part types | 478 | per part type | ||
Overhead cost for O48C
| Activity Rate | Activity | ABC Cost | |||||||
| Supporting direct labor | $ | 6 | per DLH | 27,160 | DLHs | $ | 162,960 | ||
| Setting up machines | $ | 174 | per setup | 800 | setups | 139,200 | |||
| Parts administration | $ | 478 | per part type | 2,460 | part types | 1,175,880 | |||
| Total | $ | 1,478,040 | |||||||
Overhead cost for G94Z
| Activity Rate | Activity | ABC Cost | |||||||
| Supporting direct labor | $ | 6 | per DLH | 43,920 | DLHs | $ | 263,520 | ||
| Setting up machines | $ | 174 | per setup | 3,360 | setups | 584,640 | |||
| Parts administration | $ | 478 | per part type | 1,880 | part types | 898,640 | |||
| Total | $ | 1,746,800 | |||||||
| O48C | G94Z | ||||
| Direct materials | $ | 24.80 | $ | 56.30 | |
| Direct labor | 24.10 | 63.20 | |||
| Manufacturing overhead ($1,478,040 ÷ 38,800 units; $1,746,800 ÷ 18,300 units) | 38.09 | 95.45 | |||
| Unit product cost | $ | 86.99 | $ | 214.95 | |