Rosman Inc manufactures and sells two products Product Q1 an

Rosman, Inc., manufactures and sells two products: Product Q1 and Product G2. The company currently uses a plantwide predetermined overhead rate based on direct labor-hours. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

  

   

The direct labor rate is $28.00 per DLH. The direct materials cost per unit for each product is given below:

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Required:

Calculate the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products. (Round your intermediate calculations and final answers to 2 decimal places. Enter your answers as positive values.)

Rosman, Inc., manufactures and sells two products: Product Q1 and Product G2. The company currently uses a plantwide predetermined overhead rate based on direct labor-hours. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

Solution

Predetermined overhead cost under traditional cost = Overhead ÷ Total Direct labor hours 588164 / 7200 $                      81.69 per DLH Hint Cost under traditional system Cost under traditional system Product Q1 product Q2 Product Q1 product Q2 Expected Production 720 820 Expected Production 720 820 Total Direct material $            212,112.00 $                         153,996.00 Total Direct material (720 x 294.60) (720 x 187.80) Direct Labor                110,880.00                                90,720.00 Direct Labor (3960 x 28) (3240 x 28) Overhead                323,490.20                              264,673.80 Overhead (3960 x 81.69) (3240 x 81.69) Total Product Cost $            646,482.20 $                         509,389.80 Total Product Cost $     646,482.20 $ 509,389.80 ÷ No of units ÷ 720 ÷ 820 ÷ No of units ÷ 720 ÷ 820 Per units cost $                    897.89 $                                  621.21 Per units cost $             897.89 $          621.21 Estimated Expected Activity Activity rate A B C = A÷ B Activity Cost Pools Activity Measures Overhead Cost Product Q1 Product G2 Total   Labor-related   DLHs $                                  105,156 3,960       3,240                            7,200 $            14.61   Product testing   Tests                                        78,008 1,230       1,640                            2,870 $            27.18   General factory   MHs                                      405,000 6,000       5,280                          11,280 $            35.90 $                                  588,164 Overhead assigned as per ABC rates Product Q1 Rate x No. of driver units = Amount   Labor-related $                      14.61 3960 $                      57,835.80   Product testing $                      27.18 1230 $                      33,432.00   General factory $                      35.90 6000 $                    215,425.53 $                    306,693.33 Product G2 Rate x No. of driver units = Amount   Labor-related $                      14.61 3240 $                      47,320.20   Product testing $                      27.18 1640 $                      44,576.00   General factory $                      35.90 5280 $                    189,574.47 $                    281,470.67 Cost under ABC system Product Q1 product Q2 Expected Production 720 820 Total Direct material $            212,112.00 $                         153,996.00 Direct Labor                110,880.00                                90,720.00 Overhead                306,693.33                              281,470.67 Total Product Cost $            629,685.33 $                         526,186.67 ÷ No of units ÷ 720 ÷ 820 Per units cost $                    874.56 $                                  641.69 Product Q1 product Q2 ABC per unit cost $                    874.56 $                                  641.69 Traditional per unit cost $                    897.89 $                                  621.21 Difference $                    (23.33) $                                    20.48