Question

Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:
Rascon Parcel
Direct materials cost per unit $ 15 $ 8
Direct labor cost per unit $ 2.90 $ 3.80
Direct labor-hours per unit .20 .25
Number of units produced 20,000 41,000


These products are customized to some degree for specific customers.



Required:
1.
The company's manufacturing overhead costs for the year are expected to be $299,250. Using the company's traditional costing system, compute the unit product costs for the two products. (Round your intermediate calculations and final answers to 2 decimal places.)




2.
Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:



Rascon Parcel Total
Engineering design time (in hours) 4,400 4,400 8,800
Compute the unit product costs for the two products using the proposed activity-based absorption costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

Answer 1

Answer:

1. Rascon = $22.1 / unit

   Parcel = $17.05 / unit

2.  Rascon = $23.74 / unit

     Parcel = $ 16.30 / unit

Explanation:

Total Labor Hours = 0.2 * 20000 + 0.25 * 41000 = 14250 Labor Hour

Overhead Absorption Rate (OAR) = 299250 / 14250 => $21 / Direct Labor Hour

1. Per unit cost

   Rascon = DM + DL + Overheads

                 = 15 + 2.9 + (0.2 * 21) => $22.1

   Parcel = 8 + 3.8 + (0.25 * 21) => $17.05

2.

New OAR (Labor Hours) = [(299250 / 2) / 14250] = $10.5 / Labour hour

OAR ( Engineering Hour) = [(299250 / 2) / 8800] = $17 / Engineering Hour    

Engineering Hours per unit

Rascon = 4400 hours / 20000 units = 0.22 hours / unit

Parcel = 4400 hours / 41000 units = 0.1073 hours / unit rounded off to 0.11

Per unit cost

   Rascon = 15 + 2.9 + (0.2 * 10.5) + ( 17 * 0.22 ) = $23.74

   Parcel = 8 + 3.8 + (0.25 * 10.5) + ( 17 * 0.11 ) = $16.295