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For many years, Thomson Company manufactured a single product called a LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced
a second product called a LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.50 hour of direct labor time per unit to manufacture and
extensive machining in the automated portion of the plant. The LEC 40 requires only 0.30 hour of direct labor time per unit and only a small amount of machining.
Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.
Despite the growing popularity of the companys new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the
companys costing system.
	Material and labor costs per unit are as follows:
		LEC 40	LEC 90
	Direct materials	$50.00	$100.00
	Direct labor (@ $10.00 per hour)	$3.00	$5.00
	Direct labor time per unit			Hard Code from data above
	Management estimates the following for the current year:
	Manufacturing overhead costs	$ 665,000
	Units produced and sold	25,000	5,000
	Required (Complete the templates by filling in the highlighted cells)
	Complete the templates for Part 1, 2 and 3 by filling in the highlighted cells.
	Do not hard code the amounts. You must link to the data given and enter formulas.
	Format all number cells as Accounting.
	Use the round function and show 2 places after the decimal where appropriate.
	Round all rates and per unit amounts to the penny.
	Use the sum function for totals.
Part 1	Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor-hours.
	Using this rate and other data from the problem, determine the unit product cost of each product.
Part 2	Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports.
	The activity-based costing system would have the following four activity cost pools:
	Activity Cost Pool	Activity Allocation Base	Estimated Overhead Cost
	Maintaining parts inventory	Number of part types	$ 60,000
	Processing purchase orders	Number of purchase orders	145,000
	Quality control	Number of tests run	285,000
	Machine related	Machine-hours	175,000
			$ 665,000
		Expected Activity
	Activity Pool	LEC 40	LEC 90	Total
	Number of part types	500	700	1,200
	Number of purchase orders	2,600	1,400	4,000
	Number of tests run	5,550	9,450	15,000
	Machine-hours	3,000	7,000	10,000
	Determine the activity rate (i.e., predetermined overhead rate) for each of the four activity cost pools.
Part 3	Using the activity rates you computed in part (2) above, do the following:
a.	Determine the total amount of manufacturing overhead cost that would be applied to each product using the activity-based costing system.
	After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each product.
b.	Compute the unit product cost of each product.
	Check figures:
	Part 1:
	LEC 40 Total unit cost	72.95
	LEC 90 Total unit cost	138.25
	Part 3:
	LEC 40 Total unit cost	64.09
	LEC 90 Total unit cost	182.56

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