Cosgrove Company manufactures two products
by | Mar 18, 2020 | Uncategorized
Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product K-7. Product L-15 is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hour of direct labor time for Product K-7. Product L-15 is produced on an automated production line.
Overhead currently is applied to the products on the basis of direct labor-hours. The company estimated it would incur $925,944 in manufacturing overhead costs and produce 11,400 units of Product L-15 and 45,600 units of Product K- 7 during the current year.
| Unit costs for materials and labor are: |
|
Product K-7 |
Product L-15 |
| Direct material |
$ |
15 |
$ |
25 |
| Direct labor |
$ |
13 |
$ |
13 |
| a-1 |
Compute the predetermined overhead rate under the current method of allocation and. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)
|
.
| Predetermined overhead rate |
$ |
| a-2 |
Determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “$” sign in your response.)
|
| |
Unit Product Cost |
| Product K-7 |
$ |
| Product L-15 |
$ |
| b. |
The company is considering the use of activity-based costing as an alternative to its traditional costing method for manufacturing overhead. Data relating to the company’s activity cost pools for the current year are given below:
|
Total Activity
| Activity Cost Pools |
Total Cost |
Product K-7 |
Product L-15 |
Total |
| Machine setups required |
$ |
392,080 |
1,170 |
2,210 |
3,380 |
| Purchase orders issued |
|
55,706 |
552 |
140 |
692 |
| Machine-hours required |
|
171,810 |
7,930 |
11,160 |
19,090 |
| Maintenance requests issued |
|
306,348 |
653 |
910 |
1,563 |
|
|
|
|
| |
$ |
925,944 |
|
|
|
|
|
|
|
|
Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “$” sign in your response.)
|
|
Product K-7 |
Product L-15 |
| Direct materials |
$ |
$ |
| Direct labour |
|
|
| Manufacturing overhead |
|
|
|
|
|
| Total unit product cost |
$
|
$
|
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