Wolverines Company manufacturers a product available in a regular and deluxe model. In recent years the volume of the deluxe model has increased relative to
the regular model while company profits have decreased. Management is concerned about the accuracy of the costing system.
Overhead is assigned on direct labor hours. For the current year expected overhead cost is $5000000. Wolverines expects 100000 regular
units to be produced each unit taking 0.8 of an hour so the total time is expected to be 80000 hours. Wolverines also expects 40000 deluxe units to be
produced each unit taking 0.5 hours so the total time expected is 20000 hours. Direct materials and direct labor costs per unit are as follows:
Direct Materials $120 $150
Direct labor 6 12
a. Using direct-labor hours as the allocation base for assigning overhead compute the predetermined overhead rate and the cost per unit for each product.
Assume overhead costs can be traced to two activity centers. These activity centers their cost drivers and estimated cost and cost driver activity levels are
Estimated cost driver level
Activity Center (and cost driver) Estimated Total Regular Deluxe
Purchased orders (# of orders) $1000000 1000 300 700
Machine related (machine hours) $4000000 40000 10000 30000
Total overhead cost $5000000
b. Using activity-based costing compute the overhead costs assignable to each product and the overhead cost per unit for each product
c. Using activity-based costing compute the cost per unit for the two products.