Marine, Inc., manufactures a product that is available in both aflexible and a rigid model. The company has made the rigid modelfor years; the flexible model was introduced several years ago totap a new segment of the market. Since introduction of the flexiblemodel, the company’s profits have steadily declined, and managementhas become concerned about the accuracy of its costing system.Sales of the flexible model have been increasing rapidly.

Overhead is applied to products on thebasis of direct labor-hours. At the beginning of the current year,management estimated that $714,000 in overhead costs would beincurred and the company would produce and sell 2,000 units of theflexible model and 10,000 units of the rigid model. The flexiblemodel requires 3.0 hour(s) of direct labor time per unit, and therigid model requires 1.50 hour(s). Direct materials and labor costsper unit are given below:

  

	Flexible		Rigid
Direct materials cost per unit	$	125	$	80
Direct labor cost per unit	$	30	$	15

   

Required:
1-a.	Compute the predetermined overhead rate using direct labor-hoursas the basis for allocating overhead costs to products.

1-b.	Compute the unit product cost for one unit of each model.
	Unit product cost Flexible Rigid

   

2.	An intern suggested that the company use activity-based costingto cost its products. A team was formed to investigate this idea.It came back with the recommendation that four activity cost poolsbe used. These cost pools and their associated activities arelisted as follows:

			Expected Activity
Activity Cost Pool and Activity Measure	Estimated Overhead Cost		Flexible	Rigid	Total
Purchase orders (number of orders)	$	22,500	100	350	450
Rework requests (number of requests)		12,500	75	175	250
Product testing (number of tests)		170,000	650	710	1,360
Machine related (machine-hours)		509,000	1,100	3,990	5,090
	$	714,000

     

Compute the activity rate for each of the activity costpools.

Activity Cost Pool Activity Rate Purchase orders per order Rework requests per request Product testing per test Machine-related per MH

3.	Using activity-based costing, do the following:

a.	Determine the total amount of overhead that would be assigned toeach model for the year.

    

	Total amount of overhead Flexible Rigid

b.		Compute the unit product cost for one unit of each model.(Do not round intermediate calculations and round youranswers to 2 decimal places.)
	Unit product cost Flexible Rigid