Cleveland Company Manufactures Two Products, Product A-33 and Product C-17

Essay

Cleveland Company manufactures two products, Product A-33 and Product C-17. Product C-17 is the more complex of the two products, requiring 1.5 hours of direct labor per unit to manufacture compared to 1.0 hour of direct labor time for Product A-33. Product C-17 is produced on an automated production line.
The company estimated it would incur $510,000 in manufacturing overhead costs and produce 10,000 units of Product C-17 and 40,000 units of Product A-33 during the current year.
Unit costs for materials and labor are:
$$\begin{array} { l l l } & \text { Product A-33 } & \text { Produet C-17 } \\\text { Direct material } & \$ 13 & \$ 21 \\\text { Direct labor } & \$ 6 & \$ 9\end{array}$$ Required:
The company is considering the use of activity-based costing as an alternative to its current traditional costing method for manufacturing overhead. Data relating to the company's activity cost pools for the current year are given below:
$$\begin{array} { l l l l l } \text { Activity cost pool } & \text { Total cost } & \text { Product A-33 } & \text { Product C-17 } & \text { Total } \\\text { Machine setups required } & \$ 253,000 & 800 & 1,600 & 2,400 \\\text { Purchase orders issued } & 72,500 & 500 & 100 & 600 \\\text { Machine-hours required } & \underline { 184,500 } & 7,000 & 10,500 & 17,500 \\\text { Total } & & & & \$ 510,000 \\\end{array}$$ Using the data above, determine the unit product cost of Product A-33 for the current year.