EXERCISE 8-17 (CONTINUED)

2. The unit product costs with the proposed ABC system can be computed as follows:

Estimated

Overhead

Activity Cost Pool

Cost* (b)

Expected Activity (a) ÷ (b)

Activity Rate

Labor related ... $288,000 24,000 direct labor-hours $12.00 per direct labor-hour

Engineering design... $288,000 6,000 engineering-hours $48.00 per engineering-hour

*The total overhead cost is split evenly between the two activity cost pools.

Rascon Parcel

Expected Expected

Activity Amount Activity Amount

Labor related at $12.00 per direct labor-hour ... 8,000 $ 96,000 16,000 $192,000

Engineering design at $48.00 per engineering-hour ... 3,000 144,000 3,000 144,000

Total overhead cost assigned (a)... $240,000 $336,000

Number of units produced (b) ... 20,000 80,000

Overhead cost per unit (a) ÷ (b ... $12.00 $4.20

The unit product costs combine direct materials, direct labor, and overhead costs:

Rascon Parcel

Direct materials... $13.00 $22.00

Direct labor... 6.00 3.00

Manufacturing overhead (see above) .. 12.00 4.20

Unit product cost... $31.00 $29.20