The following information applies to the questions displayed

The following information applies to the questions displayed below. Puget World, Inc, manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow Direct Labor- Total Direct Hours per Unit Annual Production Labor-Hours Model N 800 XL Model N 500 3.0 1.0 3,000 units 12,000 units 9,000 12.000 21000 Additional information about the company follows: a. Model N 800 XL requires $75 in direct materials per unit, and Model N 500 requires $25 b. The direct labor wage rate is $18 per hour. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products c. d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the.use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows: Estimated Activity Measure Activity Cost Pool Machine setups Special processing General factory Overhead Cost Number of setups$ 360,000 165,000 1,260,000 Machine-hours Direct labor-hours $1785,000 Expected Activity Model N 800 XL Model N 500 Activity Measure Number of setups Machine-hours Direct labor-hours Total 300 0 16,500 9,000 2,000 21,000 200 100 16,500

Solution

a) Pre-determined overhead = total overhead / DLHs = 1785000 / 21000 = $85 / DLH

b) Unit cost :

N800 = Mat. + DL + Overhead = 75 + (3*18) + (3*85) = $384

N500 = 25 + 1*18 + 1*85 = $128

c) ABC overhead rate :

Machine setups = 360000 / 300 = 1200/setup

Special processing = 165000 / 16500 = $10/MH

G. Factory = 1260000 / 21000 = $60/DLH

d) Overhead per unit as per ABC :

e)

Unit cost :

N800 = Mat. + DL + Overhead = 75 + (3*18) + 275 = $404

N500 = 25 + 1*18 + 80 = $123

	N800	N500
Machine setup	100* 1200 = 120000/3000= 40	200*1200 = 240000/12000=20
Special processing	16500*10 = 165000/3000 = 55	0
G Factory	9000*60 = 540000/3000 = 180	1200*60 = 72000/1200 = 60
total per unit	$275	$80