Dubai, INC -- ACTIVITY BASED COSTING EXERCISE MBA613

Name______________________________

Dubai, Inc. manufactures and sells two products, X and Y. The following are estimates for the coming year:

Annual sales DLH per unit Total DLH

Product X: 2,000 units 5 labor hours 10,000

Product Y: 10,000 units 4 labor hours 40,000

Direct material and direct labor costs per unit are estimated below:

Product

X Y

Direct Materials $ 25 $ 17

Direct labor ($6 per hour) 30 24

Manufacturing overhead costs total $800,000 each year.

TRADITIONAL METHOD SINGLE VOLUME-BASED POR

Assume that the company will use a single volume-based POR to apply overhead to

products based on direct labor hours.

1. Compute the predetermined overhead rate that would be used.

POR =

2. Determine the unit cost of each product, using the POR calculated in

part (a) above and the DM and DL costs given.

Low Volume High Volume

Product X Product Y

DM

DL

OH

Total Unit Cost