# Exercise 8-13 Contrasting Traditional and ABC Product Costs 1 answer below »

Exercise 8-13 Contrasting Traditional and ABC Product Costs [LO1, LO5] Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for$500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next year. The direct material cost per unit is $50 for Model X100 and$220 for Model X200. The company's total manufacturing overhead for the year is expected to be $1,995,000. A unit of Model X100 requires 2 direct labor-hours and a unit of Model X200 requires 5 direct labor-hours. The direct labor wage rate is$20 per hour.

Requirement 1:
(a) Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit the "$" sign in your response.) (b) Using this traditional approach, compute the product margins for X100 and X200. (Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

2.) Management is considering an activity-based costing system and would like to know what impact this would have on product costs. Preliminary analysis suggests that under activity-based costing, a total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of$600,000 would be assigned to Model X200. In addition, a total of $150,000 in nonmanufacturing overhead would be applied to Model X100 and a total of$350,000 would be applied to Model X200. Using the activity-based costing approach, compute the product margins for X100 and X200. (Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.) ## 1 Approved Answer kanika b 5 Ratings, (9 Votes) 1 Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to products using the predetermined overhead rate computed as follows: Predtermined overhead rate= Total manufacturing overhead / total direct labor hours *50,000 units of Model X100 @ 2.0 DLH per unit + 5,000 units of Model X200 @ 5.0 DLH per unit = 100,000 DLHs + 25,000 DLHs = 125,000 DLHs Predtermined overhead rate=$1,995,000/125,000 labor hours Predtermined overhead rate $15.96 2 Consequently, the product margins using the traditional approach would be computed as follows: Model X100 Model X200 Total Sales (50000 units*$120), (5000 units *$500) 60,00,000 25,00,000 85,00,000 Direct materials (50000 units*$50), (5000 units *$220) 25,00,000 11,00,000 36,00,000 Direct labor (50000 units*2 DLH*$20) , (5000 units*5DLH*$20) 20,00,000 5,00,000 25,00,000 Manufacturing overhead applied @$15.96 per direct labor-hour 1,596,000 399,000 1,995,000 Total manufacturing cost...

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