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Exercise 4-10 Contrasting ABC and Conventional ProductCosts [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	$	65.60		$	51.80
Direct labor cost per unit	$	19.00		$	13.80
Direct labor-hours per unit		1.4	DLHs		1	DLHs
Estimated annual production and sales		33,000	units		83,000	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 manufacturing overhead	$2,687,360
Estimated total direct labor-hours	129,200	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 Overhead Cost			Expected Activity
Activity Cost Pools and Activity Measures				Xactive			Pathbreaker			Total
Supporting direct labor (direct labor-hours)	$	988,380			46,200			83,000		129,200
Batch setups (setups)		1,008,000			290			190		480
Product sustaining (number of products)		602,240			1			1		2
General factory (machine-hours)		88,740			3,300			8,300		11,600
Total manufacturing overhead cost	$	2,687,360

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.