Reference no: EM133056615

Krypton Inc. manufactures two products, Vintex and Bromal. The company estimated it would incur $160,690 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below:

Vintex Bromal
Estimated Volume 4,700 units 3,300 units
Direct labour hours per unit 2.1 hours 1.6 hours
Direct labour cost per unit $33.60 $25.60
Direct material cost per unit $4.80 $12.70

The company is considering using an activity-based costing system to compute unit product costs instead of its traditional single plant-wide system based on direct labour hours. The activity-based costing system would use three activity cost pools and drivers:

Activity cost pool Driver
Material acquisition costs Purchase orders
Machine costs Machine setups
General factory costs Direct labour hours

Data relating to these activities for the current period are given below:

Activity cost pool Estimated. Expected driver activity levels
overhead costs Vintex Bromal Total
Material acquisition costs $78,800 920 730 1650
Machine costs $12,490 150 80 230
General factory costs $69,400 9,870 5,280 15,150

Required:

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

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

c) Which method will probably provide a better representation of unit cost? Explain briefly.