Question 3

North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion).

Production and Sales per year

Direct labour

Direct labour cost

Estimated annual manufacturing overhead Direct materials

Breakdown of overhead rates

20,000 units (Spirit) & 5,000 units (Companion)

3.5 hours per unit (both)

$32.00 per hour

$285,000

$180 per unit (both)

The breakdown between the two products for assigning overheads are as follows:

Required:

From the following information, calculate the unit costs for “Spirit” and “Companion” using both the traditional method of costing (i.e. manufacturing overhead rate is based on units produced), and Activity based Costing.