cost pool 1. setup = 56,000 2. material handling = 12,800 3. machine operation =
ID: 2351649 • Letter: C
Question
cost pool1. setup = 56,000
2. material handling = 12,800
3. machine operation = 240,000
4. packing = 60,000
total = 368,800
The product used the following activities during the period to produce 500 units:
metal casements
setup = 20
material moves = 80
machine hours = 1,900
packing = 150
a. caluculate the cost per unit of activity for each activity cost pool
b. calculate the manufacturing overhead cost per metal casement manfufactured during the period
c. comment on the adequacy of costing system
Explanation / Answer
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Activity Cost per Unit
Cost Pools Cost Cost Drivers of Activity
Setup Costs $ 45,000 ¸ 300 setups = $150
Materials handling costs 12,800 ¸ 640 material moves = $ 20
Machine operating costs 240,000 ¸ 20,000 machine hours = $ 12
Packing costs 60,000 ¸ 1,200 packing orders = $ 50
Total indirect manufact-
uring costs $357,800
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Manufacturing overhead cost of producing metal casements:
Number of setups 20 ´ $150 = $ 3,000
Number of material moves 80 ´ $20 = 1,600
Number of machine hours 1,900 ´ $12 = 22,800
Number of packing orders 150 ´ $50 = 7,500
Total manufacturing overhead cost $34,900/ 500
Casements produced
Cost per casement 500 $ 69.80
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cost system should provide an accurate measurement of manufacturing overhead because it recognizes the activities that go into making a product, and it assigns cost to the product based on the cost of performing the activities used to produce it.
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