Look Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using
a predetermined overhead rate based on direct labor-hours (DLHs).
The company has two products, N06D and M09K, about which it has provided the following data:
N06D M09K
Direct materials per unit $17.70 $62.50
Direct labor per unit $5.00 $16.00
Direct labor-hours per unit 0.50 1.60
Annual production (units) 40,000 15,000
The company's estimated total manufacturing overhead for the year is $2,532,200 and the company's estimated total direct labor-hours for the year is 44,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
Activities and Activity Measures Estimated
Overhead Cost
Supporting direct labor (DLHs) $880,000
Setting up machines (setups) 376,200
Parts administration (part types) 1,276,000
Total $2,532,200
Expected Activity
N06D M09K Total
DLHs 20,000 24,000 44,000
Setups 1,408 1,100 2,508
Part types 1,540 1,012 2,552
The manufacturing overhead that would be applied to a unit of product M09K under the activity-based costing system is closest to:
a) $76.73 b) $92.08 c) $11.00 d) $168.81
