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# Prepare for World Company, in good form and without abbreviations, a computation of the estimated product cost per unit for the current period using...

Prepare for World Company, in good form and without abbreviations, a computation of the estimated product cost per unit for the current period using the activity-based costing approach.

World Company manufactures two products, Product X and Product Z. The company estimates it will incur \$100,000 of manufacturing overhead for the current period. Overhead currently is assigned to the products using direct labor hours. Data concerning the current period’s operations under the traditional system are:

Product X Product Z
Estimated volume in units 400 1,500
Direct labor hours per unit 0.70 1.20
Direct materials cost per unit \$10.50 \$16.75
Direct labor cost per unit \$11.25 \$20.00
Manufacturing overhead cost per unit* \$33.66 \$57.70

* Using direct labor hours as the allocation base: 400 units x 0.7 direct labor hours per unit + 1,500 units x 1.2 direct labor hours per unit = 2,080 estimated direct labor hours; \$100,000 estimated manufacturing overhead/2,080 direct labor hours (DLH) = \$48.08 per DLH; \$48.08 x 0.70 = \$33.66 and \$48.08 x 1.20 = \$57.70.

In order to compute estimated cost under activity-based costing, the company has identified two activity cost pools, broken down the estimated overhead, and estimated activity levels as follows:
Estimated Estimated Activity
Activity Cost Pool Overhead Product X Product Z Total
Setup machines \$ 20,000 200 300 500
Prepare purchase orders 80,000 900 500 1,400
Total \$100,000

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Statement showing total cost of the product using activity based costing system
Particulars Product - X Product - Z Total Estimated Volume 400 1500 1900 Direct Material Cost 4200 25125 29325...

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