EMD Corporation Manufactures Two Products,Product S and Product W Required:
A)Compute the Predetermined Overhead Rate Under the Current Method

question 57

Essay

EMD Corporation manufactures two products,Product S and Product W.Product W is of fairly recent origin,having been developed as an attempt to enter a market closely related to that of Product S.Product W is the more complex of the two products,requiring one hour of direct labour time per unit to manufacture,compared to a half-hour of direct labour time for Product S.Product W is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours.The company estimated it would incur $500,000 in manufacturing overhead costs and produce 10,000 units of Product W and 60,000 units of Product S during the current year.Unit cost for materials and direct labour are:
$$\begin{array} { | l | r | r |} \hline& \text { Product } & \text { Product W } \\\hline \text { Direct materials } & \$ 10 & \$ 24 \\\hline \text { Direct labour } & \$ 8 & \$ 12 \\\hline\end{array}$$ Required:
a)Compute the predetermined overhead rate under the current method of allocation,and determine the unit product cost of each product for the current year.
b)The company's overhead costs can be attributed to four major activities.These activities and the amount of overhead cost attributable to each for the current year are given below:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$
$\begin{array}{|l|r|r|r|r|}\hline\text { Answer: }\\\hline \begin{array}{l}\text { Activity Cost } \\\text { Pool }\end{array} & \begin{array}{r}\text { Estimated } \\\text { Overhead Cost }\end{array} & \text { Product S} & \text { Product W } & \text { Total } \\\hline \begin{array}{l}\text { Machine setups } \\\text { required }\end{array} & \$ 200,00 & 800 & 1,200 & 2,000 \\\hline \begin{array}{l}\text { Purchase orders } \\\text { issued }\end{array} & 43,500 & 500 & 100 & 600 \\\hline \begin{array}{l}\text { Machine hours } \\\text { required }\end{array} & 104,000 & 3,000 & 10,00 & 13,000 \\\hline \begin{array}{l}\text { Maintenance } \\\text { requests issued }\end{array} & 152,500 & 860 & 1,140 & 2,000 \\\hline \text { Total } & \$ 500,000 & & & \\\hline\end{array}$

Using the data above and an activity-based costing approach,determine the unit product cost of each product for the current year.

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