Exercise 4-10 Contrasting ABC and Conventional Product Costs[LO4-2, LO4-3, LO4-4]

Rocky Mountain Corporation makes two types of hikingboots—Xactive and Pathbreaker. Data concerning these two productlines appear below:

	Xactive			Pathbreaker
Direct materials per unit	$	64.50		$	50.70
Direct labor cost per unit	$	17.90		$	12.70
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production andsales		22,000	units		72,000	units

The company has a conventional costing system in whichmanufacturing overhead is applied to units based on directlabor-hours. Data concerning manufacturing overhead and directlabor-hours for the upcoming year appear below:

Estimated total manufacturingoverhead	$2,025,160
Estimated total directlabor-hours	102,800	DLHs

Required:

1-a. Compute the predetermined overhead rate based on directlabor-hours.

1-b. Using the predetermined overhead rate and other data fromthe problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costingsystem with an activity-based costing system that would assign itsmanufacturing overhead to the following four activity costpools:

	Estimated OverheadCost			Expected Activity
Activity Cost Pools and ActivityMeasures				Xactive			Pathbreaker			Total
Supporting direct labor (directlabor-hours)	$	729,880			30,800			72,000		102,800
Batch setups (setups)		573,500			235			135		370
Product sustaining (number ofproducts)		655,040			1			1		2
General factory(machine-hours)		66,740			2,200			7,200		9,400
Total manufacturing overheadcost	$	2,025,160

Determine the activity rate for each of the four activity costpools.

3. Using the activity rates and other data from the problem,determine the unit product cost of each product.