Problem
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. It annually produces 69,000 units of EX300 and 13,400 units of TX500. The company's conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below:
|
EX300
|
TX500
|
Total
|
|
Direct materials
|
$
|
375,325
|
|
$
|
171,550
|
|
$
|
546,875
|
|
|
Direct labor
|
$
|
129,000
|
|
$
|
47,000
|
|
$
|
176,000
|
|
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:Activity Cost Pool
(and Activity Measure)
| |
Manufacturing
Overhead
|
Activity
|
|
|
EX300
|
TX500
|
Total
|
|
Machining (machine-hours)
|
$
|
182,600
|
|
99,000
|
|
67,000
|
|
166,000
|
|
Setups (setup hours)
|
|
249,900
|
|
120
|
|
390
|
|
510
|
|
Product-level (number of products)
|
|
187,020
|
|
1
|
|
1
|
|
2
|
|
General factory (direct labor dollars)
|
|
84,480
|
$
|
129,000
|
$
|
47,000
|
$
|
176,000
|
|
Total manufacturing overhead cost
|
$
|
704,000
|
|
|
|
|
|
|
Total manufacturing overhead cost $ 704,000
Required:
1-a. Compute the plantwide overhead rate that would be used in the company's conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.