Activity-based costing approach

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Reference no: EM13646407

Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $119,100 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below:

	Product C		Product D
Estimated volume..........................	400	units	3,000	units
Direct labor hours per unit.............	1.20	hours	1.30	hour
Direct materials cost per unit.........	$4.00		$22.80
Direct labor cost per unit...............	$12.00		$13.00

Required:

a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.

b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

		Expected Activity
Activity Cost Pool	Estimated Overhead Costs	Product C	Product D	Total
Machine setups......	$ 10,440	60	120	180
Purchase orders......	78,000	820	1,180	2,000
General factory......	30,660	480	3,900	4,380
Total.......................	$119,100

Determine the unit product cost of each product for the current period using the activity-based costing approach.

Reference no: EM13646407

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