Harrison Company makes two products and uses a conventional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:
These products are customized to some degree for specific customers.
(c) Explain why the product costs differ between the two systems.

Respuesta :

Unit Product cost:   Rascon = $72.62 (approx.)

                                               Parcel = $30.78 (approx.)

Unit product cost under traditional cost accounting:

In the traditional cost accounting system, manufacturing overhead is allocated to products based on direct labour hours. The rate per labour hour is calculated as follows:

Total expected overhead                       $866,000

Total direct labour hours:

Rascon (0.90 hours × 32,000 units)         28,800 hours

Parcel (0.40 hours × 119,000 units)         47,600 hours

Total direct labour hours                   =76,400 hours

Manufacturing overhead rate per direct labour hour= $866,000 / 76,400 = $11.3351 (approx.)per direct labour hour

Unit Product Cost is the sum of per unit direct material cost, direct labour cost and allocated overhead as follows:                                                                                  

                                                                         Rascon                                  Parcel

Direct material                                                       $29.70                                  $22.90

Direct labour                                                          $28.80                                  $4.40

Manufacturing Overhead                                 (0.90 × $11.3351)                    (0.40 × $11.3351)

                                                                              $10.20159                            $4.53404

Total                                                                      $68.70159                          $31.83404                                                                

Answer:  Unit Product cost:  Rascon = $68.70 (approx.)

                                               Parcel = $31.83 (approx.)

Total expected overhead allocated on the basis of direct labour hours                    $433,000

Total direct labour hours:

Rascon (0.90 hours × 32,000 units)         28,800 hours

Parcel (0.40 hours × 119,000 units)         47,600 hours

Total direct labour hours                   =76,400 hours

Manufacturing overhead rate per direct labour hour= $433,000 / 76,400 = $5.6675 (approx.)per direct labour hour

Total expected overhead on the basis of Engineering design time                            $433,000

Engineering design time:

Rascon                                                     5,800 hours

Parcel                                                       2,900 hours

Total time                                            =8,700 hours

Manufacturing overhead rate = $433,000 / 8,700 = $49.7701 (approx.)

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