Problem 3A-5 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing [LO3-8]

Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company?s profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly.

Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $6,306,150 in manufacturing overhead cost and produce 22,000 units of the deluxe model and 120,000 units of the regular model. The deluxe model requires 1.0 hours of direct labor time per unit, and the regular model requires 0.5 hours. Material and labor costs per unit are as follows:

	Model
	Deluxe	Regular
Direct materials	$	158	$	112
Direct labor	$	18	$	9

Required:

1-a.	Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate.(Round your answer to 2 decimal places.)

1-b.	Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of each model.(Round your intermediate calculations and final answers to 2 decimal places.)

2.	Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity-based costing system would have the following four activity cost pools:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Purchasing	Purchase orders issued	$	263,250
Processing	Machine-hours		4,012,500
Scrap/rework	Scrap/rework orders issued		734,400
Shipping	Number of shipments		1,296,000
		$	6,306,150

	Expected Activity
Activity Measure	Deluxe	Regular	Total
Purchase orders issued	450	900	1,350
Machine-hours	21,400	32,100	53,500
Scrap/rework orders issued	600	480	1,080
Number of shipments	6,480	9,720	16,200

Determine the predetermined overhead rate for each of the four activity cost pools.

3.	Using the predetermined overhead rates computed in part (2), do the following:

a.	Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each model.(Round "Overhead cost per unit" answers to 2 decimal places.)

b.	Compute the unit product cost of each model (direct materials, direct labor, and manufacturing overhead).(Round your answers to 2 decimal places.)

Problem 3A-5 Activity-Based Absorption Costing as an Alternative to Traditional Product Costing [LO3-8] Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the compa declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have be Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated tha in manufacturing overhead cost and produce 22,000 units of the deluxe model and 120,000 units of the regular model. The deluxe model re labor time per unit, and the regular model requires 0.5 hours. Material and labor costs per unit are as follows: Direct materials Direct labor Model Deluxe Regular $ 158 $ 112 $ 18 $ 9 Required: 1-a. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead answer to 2 decimal places.) 1-b. Using the predetermined overhead rate computed in 1-a above and other data from the problem, determine the unit product cost of your intermediate calculations and final answers to 2 decimal places.) 2. Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity-b would have the following four activity cost pools: Activity Cost Pool Purchasing Processing Scrap/rework Shipping Estimated Overhead Cost $ 263,250 4,012,500 734,400 1,296,000 Activity Measure Purchase orders issued Machine-hours Scrap/rework orders issued Number of shipments $ Activity Measure Purchase orders issued Machine-hours Scrap/rework orders issued Number of shipments Deluxe 450 21,400 600 6,480 Expected Activity Regular 900 32,100 480 9,720 Determine the predetermined overhead rate for each of the four activity cost pools. 3. Using the predetermined overhead rates computed in part (2), do the following: 6,306,150 Total 1,350 53,500 1,080 16,200 a. Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption totals have been computed, determine the amount of manufacturing overhead cost per unit of each model. (Round "Overhead co decimal places.) b. Compute the unit product cost of each model (direct materials, direct labor, and manufacturing overhead). (Round your answers