Matchbox Manufacturing Has a Traditional Costing System in Which It

question 47

Essay

Matchbox Manufacturing 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, Utility and Super, about which it has provided the following data:
$\begin{array}{lrr} &\text { Utility} &\text { Super } \\ \text { Direct materials per unit } &\$34.10&52.70\\ \text {Direct labor per unit } &\$16.10&\$39.10\\ \text { Direct labor-hours per unit} &0.70&1.70\\ \text { Annual production } &30,000&10,000\\\end{array}$

The company's estimated total manufacturing overhead for the year is $1,527,600 and the company's estimated total direct labor-hours for the year is 38,000.
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:
$$\begin{array} { l c } \text { Activities and Activity Meas.ires } & \text { Estimated Overhead Cost } \\\text { Assembling products (DLHs) } & \$ 608,000 \\\text { Preparing batches (batches) } & 197,600 \\\text { Axial milling (MHs) } & \underline{722,000} \\\text { Total } & \underline{ \$ 1,527,600}\end{array}$$
$$\begin{array} { | l | r | r | r | } \hline & \text { Utility } & { \text { Super } } & { \text { Total } } \\\hline \text { Assernbling products } & 21,000 & 17,000 & 38,000 \\\hline \text { Preparing batches } & 456 & 1,520 & 1,976 \\\hline \text { Axial milling } & 570 & 874 & 1,444 \\\hline\end{array}$$
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

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Definitions:

Bond Indenture

A legal document specifying the terms and conditions under which a bond is issued, including the interest rate, maturity date, and other covenants.

Stated Interest Rate

The annual interest rate declared on a financial instrument, such as a loan or bond, not taking into account compounding or fees.

Market Interest Rate

The prevailing rate of interest available in the market, influencing the rates charged on loans and paid on deposits.

Face Value

The face value or monetary amount displayed on a bond, note, or any financial document, indicating the total due upon its maturity.