Reference no: EM13578225

Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company%u2019s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.

Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $621,000 in overhead costs would be incurred and the company would produce and sell 5,000 units of the flexible model and 40,000 units of the rigid model. The flexible model requires 1.6 hours of direct labor time per unit, and the rigid model requires 0.8 hours. Materials and labor costs per unit are given below:

		Flexible	Rigid
	Direct materials cost per unit....	$150.00	$112.00
	Direct labor cost per unit..........	$16.00	$8.00

Required:

1a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products.(Round your answer to 2 dicimal places)

1b. Compute the unit product cost for one unit of each model.(Do not round intermediate calculations. Round your final answers to 2 dicimal places)

2. An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea and it came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed below:

		Estimated
		Overhead		Expected Activity
	Activity Cost Pool and Activity Measure	Cost		Flexible	Rigid	Total
	Purchase orders (number of orders)................	$     22,000		400	800	1,200
	Rework requests (number of requests)...........	10,000		300	600	900
	Product testing (number of tests)....................	220,000		4,000	11,000	15,000
	Machine-related (machine-hours)...................	369,000		20,000	30,000	50,000

Compute the activity rate for each of the activity cost pools.

3. Using activity-based costing, do the following:

a. Determine the total amount of overhead that would be applied to each model for the year.

b. Compute the unit product cost for one unit of each model.