Activity Recommended Cost Driver Costs Cost Driver Order processing # of orders

Question

Activity Recommended Cost Driver Costs Cost Driver

Order processing # of orders 52500 125 orders

product set up # of production runs 210000 75 runs

materials handling pounds of mat. used 375000 125000 lbs

machine depreciation and maint. machine hrs 322000 20000 hrs

quality control # of inspections 80000 40 inspect.

packing # of units 14000 280000 units


In addition, management estimates 50,000 direct labor hours will be used in the upcoming year at a rate of $14 per hour.
Assume that the following activity took place in the first month of the upcoming year:

Beginners Intermediate Advanced

Number of units produced 20000 8000 3000

Direct materials costs 20800 13000 8000

Direct Labor hrs. 500 1 2000

# of orders 6 4 3

# of productions runs 2 2 3

Pounds of material 8000 3200 1500

Machine Hours 1200 300 200

# of inspections 3 3 2

# of units shipped 18000 7500 2500

Required:
(A) Compute the production costs for each product in the first month of the upcoming year using direct labor hours as the allocation base.
(B) Compute the production costs for each product in the first month of the upcoming year using machine hours as the allocation base.
(C) Compute the production costs for each product in the first month of the upcoming year using activity-based costing.

Explanation / Answer

a. Total overhead: $52,500 + 210,000 + 375,000 + 322,000 + 80,000 + 14,000 = $1,053,500;

======================================================================================================================================================

Overhead rate = $1,053,500/50,000

======================================================================================================================================================DLH = $21.07/DLH;

======================================================================================================================================================Beginning: $21.07 500 = $10,535;

======================================================================================================================================================

Intermediate: $21.07 1,000 = $21,070;

======================================================================================================================================================Advanced: $21.07 2,000 = $42,140

============================================================================================================================================================================================================================================================================================================b. Overhead rate: $1,053,500/20,000

======================================================================================================================================================MH = $52.675/MH; Beginning: $52.675 1,200 = $63,210;

=====================================================================================================================================================

=Intermediate: $52.675 300 = $15,803;

======================================================================================================================================================Advanced: $52.675 200 = $10,535

======================================================================================================================================================

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