Solution-Determine the total cost to produce one unit of

Determine the total cost to produce one unit of each product

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Question - ABC: Comparison to traditional costing

Surfs Up manufactures surfboards. The company produces two models: the small board and the big board. Data regarding the two boards are as follows:

Product	DL per Unit	Annual Production	Total DL hours
Big	1.5	10 000 boards	15000
Small	1	35 000 boards	35000

The big board requires $75 in direct materials per unit, whereas the small board requires $40. The company pays an average direct labour rate of $13 per hour. The company has historically used direct labour hours as the activity base for applying overhead to the boards. Manufacturing overhead is estimated to be $1 664 000 per year.

Volume of annual activity

Activity Centre	Cost drivers	Traceable cots	Big board	Small board
Machine setup	Number of setups	$100,000.00	100	100
Special design	Design hours	$364,000	900	100
Production	DL hours	$900,000	15000	35000
Machining	Machine hours	$300.000	9000	1000

a. Calculate the overhead rate based on traditional overhead allocation with direct labour hours as the base.

b. Determine the total cost to produce one unit of each product. (Use the overhead rate calculated in question A.)

c. Calculate the overhead rate for each activity centre based on activity-based costing techniques.

d. Determine the total cost to produce one unit of each product. Use the overhead rates calculated in question C.

Reference no: EM131584638

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Determine the total cost to produce one unit of each product

Reference no: EM131584638

Reference no: EM131584638

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