Saved Carter Company manufactures two products, Deluxe and Regular, and uses a t

Question

Saved Carter Company manufactures two products, Deluxe and Regular, and uses a traditional two-stage cost allocation system. The first stage assigns all factory overhead costs to two production departments, A and B, based on machine hours. The second stage uses direct labor hours to allocate overhead to individual products For the current year the firm budgeted $1.500,000 total factory overhead cost. The $1,500,000 was for the planned levels of machine and direct labor hours shown in the following table. ProductionProduction Machine hours Direct labor hours 6,080 38,98 24,000 15,888 The following information relates to the firm's operations for the month of January Units produced and sold Unit cost of direct naterials Hourly direct labor kage rate Direct labor hours in Department A per unit Direct labor hours in Department B per unit 1,289 150$75.80 S 25 S30 380 Carter Compony is considering implementing on activity based costing system. its information for activity cost anelysis for the current year tant has collected the following Budgeted Overhead Budgeted Driver Consumption Quantity Deluxe Regulan tivity Cost Dri Material movement10,500 lumber of production runs Hachine setups 403.0023.00 30 750 38.00 75.0

Explanation / Answer

Total budgeted overheads

overhead

(rate *activty)

overhead

(Rate * Activity)

Workings

Total budgeted overheads

1500000 Total Machine hours (6000+24000) 30000 overhead rate per machine hours (1500000/30000) 50 overheads for department A (6000*50) 300000 overheads for department B (24000*50) 1200000 overhead rate per direct labor hour for department A (300000/30000) $10 per DLH overhead rate per direct labor hour for department B (1200000/15000) $80 per DLH Requirement 1 particulars Deluxe Regular Material cost per unit 150 75 Labour cost Department ( hourly wage rate *2) 50 60 Department ( hourly wage rate *1) 25 30 overhead per unit Department A overhead @ 10*2 20 20 Department B overhead @80*1 80 80 Unit cost 325 265 requirement 2 Activity rate STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity measures Total overheads Expected Activity Activity rate Material movement Runs 10500 403 26.0545906 Machine setups Setups 600,000 750 800 Inspections Units 882,000 29,400 30 Shipment Shipments 7,500 375 20 overhead allocation and cost per unit Deluxe Regular Activity Rate Activity

overhead

(rate *activty)

Activity

overhead

(Rate * Activity)

Material Movement 26.05 23 599.26 30 781.64 Machine setups 800 38 30400 75 60000 Inspections 30 300 9000 1200 36000 Shipment 20 75 1500 150 3000 Total overheads 41499.26 99781.64 Number of units 300.00 1200.00 Cost per unit 138.33 83.15 Requirement 3 Unit product cost Deluxe Regular Material cost per unit 150 75 Labour cost Department A 50 60 Department B 25 30 Overhead Cost per unit 138.33 83.15 Unit product cost 363.33 248.15

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