Use the following to answer questions 18 and 19 Simba Corpor

Use the following to answer questions 18 and 19: Simba Corporation manufactures three products. In the past, Simba has been using a traditional costing system in which manufacturing overhead was applied using a predetermined overhead rate of 150% of direct labor cost. Sensing the traditional costing system was distorting product costs; Simba is considering a switch to an activity-based costing system. Under activity-based costing, manufacturing overhead costs will be assigned to products using three activity cost pools. Information on these cost pools for next year is as follows: 0 Activity Cost Pool Machine Setups Quality Control Production Estimated Overhead Cost $150,000 $180,000 $480,000 Expected Activity 400 Setups 1,500 Inspections 30,000 Machine hours 2 Information on a per unit basis for the three products produced by Simba follows: Model #19 $400 $810 Model #36 $540 $600 Model #58 S310 $220 Direct material cost Direct labor cost Number of seturp. Number of inspections 10

Solution

Activity Cost Pool Expected Activity Estimated Overhead Cost Rate A B C = B/A Machine Setups                400 Setups               150,000 $        375 Quality Control            1,500 Inspection               180,000 $        120 Production          30,000 Machine hours               480,000 $          16 Total $           810,000 1.18 Model #36 Direct material cost $540 Direct labor cost                600 Manufacturing Overhead                900 (150% of DLC or 600) Total cost per unit $2,040 Ans is B 1.19 Model #36 Direct material cost $400 Direct labor cost                        810 Manufacturing Overhead Setup 2 x 375 750 inspection 1 x 120 120 machine hours 4 x 16 64 Total manufacturing Overhead 934 Total cost per unit Ans is D $                2,144