Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $199,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current period’s operations appear below:
| Product C | Product D |
|---|
| Estimated volume | 4,900 | units | 4,100 | units |
|---|
| Direct labor-hours per unit | 3.40 | hours | 3.50 | hours |
|---|
| Direct materials cost per unit | $ 22.60 | | $ 36.90 | |
|---|
| Direct labor cost per unit | $ 34.00 | | $ 35.00 | |
|---|
Required:
a. Compute the predetermined overhead rate under the current method, and determine the unit product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
| Activity Cost Pools | Estimated Overhead Costs | Expected Activity |
|---|
| Product C | Product D | Total |
|---|
| Machine setups | $ 14,390 | 330 | 340 | 670 |
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| Purchase orders | 81,840 | 1,260 | 1,600 | 2,860 |
|---|
| Order size | 103,680 | 16,660 | 14,350 | 31,010 |
|---|
| Total | $ 199,910 | | | |
|---|
Determine the unit product cost of each product for the current period using the activity-based costing approach.
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