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Problem 4-17 (Static) Contrast Activity-Based Costing and Conventional Product Costing [LO4-2, LO4-3, LO4-4]

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Puget World, Incorporated, manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:

	Direct Labor- Hours per Unit	Annual Production		Total Direct Labor-Hours
Model N 800 XL	3.0	3,000	units	9,000
Model N 500	1.0	12,000	units	12,000
				21,000

Additional information about the company follows:

a. Model N 800 XL requires $75 in direct materials per unit, and Model N 500 requires $25.

b. The direct labor wage rate is $18 per hour.

c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products.

d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost
Machine setups	Number of setups	$ 360,000
Special processing	Machine-hours	165,000
General factory	Direct labor-hours	1,260,000
		$ 1,785,000

Activity Measure	Expected Activity
	Model N 800 XL	Model N 500	Total
Number of setups	100	200	300
Machine-hours	16,500	0	16,500
Direct labor-hours	9,000	12,000	21,000

Problem 4-17 (Static) Part 2

2. Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products.

a(1). Compute the activity rate for each activity cost pool.

a(2). Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system.

b. Compute the unit product cost of each model.

Answer: Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Compute the activity rate for each activity cost pool.

Machine setup-______ per setup

Special Processing______ per MH

General factory_______ per DLH

Answer: Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system.

Overhead cost per unit______ Model N 800XL_________ Model N 500_______

Unit product cost: Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. Compute the unit product cost of each model.

Unit product cost______ Model N 800 XL _______ Model N 500_______