Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $119,100 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 | 400 | units | 3,000 | units |
|---|
| Direct labor-hours per unit | 1.20 | hours | 1.30 | hours |
|---|
| Direct materials cost per unit | $ 4.00 | | $ 22.80 | |
|---|
| Direct labor cost per unit | $ 12.00 | | $ 13.00 | |
|---|
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 |
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| Machine setups | $ 10,440 | 60 | 120 | 180 |
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| Purchase orders | 78,000 | 820 | 1,180 | 2,000 |
|---|
| Order size | 30,660 | 480 | 3,900 | 4,380 |
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| Total | $ 119,100 | | | |
|---|
Determine the unit product cost of each product for the current period using the activity-based costing approach.
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