Reference no: EM132761752

Problem - Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product A. Product B is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product A. Product B is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product B and 22,000 units of Product A during the current year. Unit costs for materials and direct labour are:

	Product A	Product B
Direct material	$9	$20
Direct labour	$7	$15

Required -

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

b) The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below. Using the data below and an activity-based costing approach, determine the unit product cost of each product for the current year.

Activity Cost Pools	Estimated Overhead Cost	Expected Activity
		Product A	Product B	Total
Machine setups required	$170,000	700	1,000	1,700
Purchase orders issued	37,000	300	200	500
Machine-hours required	91,000	4,000	9,000	13,000
Maintenance requests Issued	98,000	400	600	1,000
	$396,000