Preble 2Septemctl Preblean 2-Activity-based testing versus traditional costing Lovelace Company produces only two products: reading glasses and sunglasses. The company uses a normal overhead to produce its products. The company expects to produce 4,000 reading glasses and 8,000 sunglasses this year. Each pair of reading glasses requires two direct labor hours to produce, and each pair of sunglasses requires one-half hour to produce. The direct material and direct labor costs per unit are as follows:
Reading Glasses Sunglasses
Direct Material (per unit) $30.00 $17.00
Direct Labor (per unit) $16.00 $4.00
Estimated total factory overhead data for the year is as follows:
Activity Production setups Material handling Packaging and shipping Total factory overhead
Budgeted Overhead Reading Glasses Sunglasses Total $80,000 5 setups 15 setups 20 setups $70,000 1,000 lbs. 4,000 lbs. 5,000 lbs. $120,000 4,000 boxes 2,000 boxes 6,000 boxes $270,000
Required:
1. Calculate the total product cost per pair of each product using a plant-wide rate based on direct labor hours:
- Reading glasses
- Sunglasses
2. Calculate the activity cost rates for the following activities:
(a) Setups
(b) Material handling
(c) Packaging and shipping
3. Calculate the total product cost per pair of each product using activity-based costing:
- Reading glasses
- Sunglasses