Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct labor hours. Ant

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Scott Inc Manufactures Two Products Regular And Deluxe And Applies Overhead On The Basis Of Direct Labor Hours Ant 1 (116.3 KiB) Viewed 10 times

Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct labor hours. Anticipated overhead and direct labor time for the upcoming accounting period are $1,600,000 and 25,000 hours, respectively. Information about the company's products follows. Regular- Estimated production volume: 3,000 units Direct materials cost: $28 per unit Direct labor per unit: 3 hours at $15 per hour Deluxe- Estimated production volume: 4,000 units Direct materials cost: $42 per unit Direct labor per unit: 4 hours at $15 per hour Scott's overhead of $1,600,000 can be identified with three major activities: order processing ($250,000), machine processing ($1,200,000), and product inspection ($150,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow. Regular Deluxe Total Orders Processed 320 180 500 Machine Hours Inspection Worked Hours 16,000 24,000 40,000 4,000 6.000 10,000 Required: A. Compute the pool rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system. (4 marks) B. Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the expected manufacturing volume is attained. (10 marks) C. How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional costing and applied overhead solely on the basis of direct labor hours? Which of the two products would be undercosted by this procedure? Overcosted? (6 marks)