Pete\'s PCs, Inc. budgeted manufacturing overhead costs for the year are: Cost P
ID: 2418751 • Letter: P
Question
Pete's PCs, Inc. budgeted manufacturing overhead costs for the year are:
Cost Pools
$2,500,000
$1,500,000
$4,000,000
Under a traditional cost system, the company estimated the budgeted capacity for machine hours to be 40,000 hours. Bill is considering changing to an activity-based cost system. Thus, the following estimates were provided:
Activity-based cost drivers
50,000 kilowatt hours
10,000 inspections
The following information was provided concerning the production of 1,000 units of model #1040:
$50,000
$75,000
10,000
5,000
20,000
1,000
REQUIRED:
Cost Pools
Electric Power$2,500,000
Inspection$1,500,000
Budgeted overhead costs$4,000,000
Explanation / Answer
Details Details Traditional Costing ABC Costing Direct materials cost 50,000.00 50,000.00 Direct labor costs 75,000.00 75,000.00 Mfg OH Under Traditional System 4000000/40000*10000 10,00,000.00 Mfg OH Under ABC System Electric Power 2500000/50000*20000 10,00,000.00 Inspection 1500000/10000*1000 1,50,000.00 Total Manufacturing Cost 11,25,000.00 12,75,000.00 Mfg Cost Per Unit 1,125.00 1,275.00 Cost objects such as products and services consume various resources ( Cost center) differently. ABC shifts its focus from department to activity to define the consumption pattern more clearly which would enable more accurate costing and prizing as well as decision making.
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