XYZ Inc., manufactures and sells two products: Product B7 and Product Z5. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours
Product B7 300 5.0 1,500
Product Z5 800 3.0 2,400
Total direct labor-hours 3,900

The direct labor rate is $15.10 per DLH. The direct materials cost per unit is $136.20 for Product B7 and $204.40 for Product Z5. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Activity cost pools Activity measures Estimated overhead cost Expected activity
Product B7 Product Z5 Total
Labor-related DLHs $39,585 1,500 2,400
Production orders Orders $26,884 500 600
Order size MHs $462,768 4,600 4,700

The unit product cost of Product Z5 under activity-based costing is closest to:

XYZ Inc.

The unit product cost of Product Z5 under activity-based costing is closest to:

= $999.62.

Explanation:

a) Data and Calculations:

                                         Product B7      Product Z5   Total

Expected Production               300                 800

Per Unit                                      5.0                  3.0

Total Direct Labor-Hours      1,500              2,400        3,900

Direct labor rate per DLH   $15.10              $15.10

Total direct labor costs      $22,650        $36,240

Direct materials per unit     $136.20        $204.40

Total direct materials costs $204,300    $490,560

Activity cost pools     Activity    Estimated         Expected activity

                               measures  overhead cost  Product B7 Product Z5 Total

Labor-related           DLHs          $39,585             1,500        2,400     3,900

Production orders   Orders        $26,884               500           600      1,100

Order size                MHs         $462,768            4,600        4,700     9,300

                                Rates

Labor-related          $10.15 ($39,585/3,900)

Production orders   24.44 ($26,884/1,100)

Order size               49.76 ($462,768/9,300)

Product Z5      

Labor-related          $24,360 ($10.15 * 2,400)

Production orders   $14,664 (24.44 * 600)

Order size             $233,872 ($49.76 * 4,700)

Total overhead     $272,896

Product Z5  

Direct materials $490,560

Direct labor            36,240

Overhead            272,896

Total costs        $799,696

Unit cost = $999.62 ($799,696/800)