Exercise 2: ( Note : the answer should be on Excel or Computer Typed)

Hewlett-Packard Company produces only two products: a major computer and printers. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide overhead rate based on direct labor hours. Outside cost consultants have recommended, however, that the company use activity-based costing to charge overhead to products. The company expects to produce 4,000 computer and 2,000 printers in 2015.

Each computer part requires two direct labor hours to produce and each printer requires one-half hour to produce. The direct material and direct labor costs included in the two products are as follows:

Item	Computer Part	Printer part
Direct Material (per unit)	$ 300	$170
Direct Labor (per unit)	$160	$40

Budgeted (Estimated) Total Factory Overhead Data For 1999:

Activity	Budgeted Overhead Dollars	Estimated Volume Level
Production Setups	$ 80,000	20 setups
Material Handling	$70,000	5,000 Ibs
Packaging and Shipping	$ 120,0000	6,000 boxes
Total Factory Overhead	$ 270,000

Based on an analysis of the three overhead activities, it was estimated that the two products would require these activities as follows in 2015:

Activity	Computer	Printer	Overall Totals
Production Setups	5 setups	15 setups	20 setups
Material Handling	1,000 Ibs	4,000 Ibs	5,000 Ibs
Packaging and Shipping	4,000 boxes	2,000 boxes	6,000 boxes

Required:

1. Calculate the cost of each product using a plant-wide rate based on direct labor hours.

2. Calculate the activity cost rates for (a) setups, (b) material handling and (c) packaging and shipping.

3. Cost out the two products using an activity-based costing system.