Reference no: EM13518318

Cabalo Company manufactures two products, Product C and Product D. The company estimated it would incur $130,890 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 unit production	400 units	1,200 units
Direct labor hours per unit	0.70 hour	1.20 hours
Direct materials cost per unit	$10.70	$16.70
Direct labor cost per unit	$11.20	$19.20

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:

Estimated Overhead	Expected Activity
Activity Cost Pool	Costs	Product C	Product C	Total
Machine setups	$ 13,570	100	130	230
Purchase orders	91,520	810	1,270	2,080
General factory	25,800	280	1,440	1,720
	$130,890

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