Kebort Manufacturing Corporation Has a Traditional Costing System in Which

question 25

Multiple Choice

Kebort Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs) . The company has two products, U86Y and M91F, about which it has provided the following data: $\begin{array} { | l | r | r | } \hline & \text { U86Y } & \text { M91F } \\\hline \text { Direct materials per unit } & \$ 19.80 & \$ 45.80 \\\hline \text { Direct labour per unit } & \$ 18.20 & \$ 49.40 \\\hline \text { Direct labour hours per unit } & 0.70 & 1.90 \\\hline \text { Annual production } & 40,000 & 10,000 \\\hline\end{array}$ The company's estimated total manufacturing overhead for the year is $2,541,760 and the company's estimated total direct labour-hours for the year is 47,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for externalreports. Data for this proposed activity-based costing system appear below:
$\begin{array} { | l | r | } \hline \text { Activities and Activity Measures } & \text { Estimated Overhead Cost } \\\hline \text { Supporting direct labour (DLHs) } & \$ 1,175,000 \\\hline \text { Setting up machines (setups) } & 407,000 \\\hline \text { Parts administration (part types) } & \underline {958,800 } \\\hline \text { Total } & \$ 2,541,760 \\\hline\end{array}$

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$
$\begin{array} { | l | r | r | r | } \hline & \text { P85G } & \text { C43S } & \text { Total } \\\hline \text { DLHs } & 28,000 & 19,000 & 47,000 \\\hline \text { Setups } & 2,256 & 658& 2,914 \\\hline \text { Part types } & 1,034&2,162 & 3,196 \\\hline\end{array}$
- The unit product cost of product U86Y under the company's traditional costing system is closest to:

• A) $71.15
• B) $55.50
• C) $75.86
• D) $38.00

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Definitions:

Higher Profits

An increase in the financial surplus after accounting for all costs, demonstrating an enhanced ability to generate income.

Unit Costs

The cost incurred to produce, store, and sell one unit of a product, crucial for pricing and profitability analyses.

Product Life Cycle

The progression of a product through four stages: introduction, growth, maturity, and decline, each affecting the marketing strategy and profitability of the product.

Scale Effects

Economic concept that refers to the cost advantages that a business can achieve due to the expansion of its production size.