Kebort Manufacturing Corporation Has a Traditional Costing System in Which

question 15

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 M91F under the activity-based costing system is closest to:

• A) $95.20
• B) $121.57
• C) $216.77
• D) $197.95

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Definitions:

Job Order Cost System

An accounting system used to accumulate costs associated with a specific production batch or job.

Raw Materials Inventory

Raw materials and components that a company holds for future use in the production process to create goods and services.

General Ledger

The comprehensive set of accounts that shows all transactions of a business, serving as the main accounting record.

Accumulating Manufacturing Costs

The process of collecting and categorizing all costs involved in producing goods.