Astro Corporation, a furniture manufacture, uses an activity-based costing syste
ID: 2425250 • Letter: A
Question
Astro Corporation, a furniture manufacture, uses an activity-based costing system. It has identified the following selected activities:
Setting up machines for a particular batch of production.
Inspecting wood prior to using it in production.
Packaging completed furniture in boxes for shipment.
Inspecting completed furniture for quality control.
Purchasing TV time to advertise a particular product.
Incurring property taxes on factory buildings.
Incurring paint cost for furniture produced.
Classify each activity as a unit-level, batch-level, product level, or facility –level activity.
Identify an appropriate cost driver (allocation base) for each of the activities.
Fenya Industries produces two surge protectors: K2761 with six outlets and D3354 with eight outlets and two telephone line connections. Because of these product differences, the company plans to use activity base costing to allocate overhead cost. The company has identified four activity pools. Relevant information follows.
Activity pools Cost Pool Total Cost Driver
Machine setup $144,000 # of setups
Machine operation $360,000 # of machine hours
Quality control $57,600 # of inspections
Packaging $38, 400 # of units
Total overhead cost $600,000
Expected activity for each product follows.
# of setups # of machine hours # of inspections # of units
K2761 48 1,400 78 25,000
D3354 72 2,600 172 15,000
Total 120 4,000 250 40.000
Compute the overhead rate for each activity pool.
Determine the overhead cost allocated to each product.
Using this information :
Activity pools Cost Pool Total Cost Driver
Machine setup $144,000 # of setups
Machine operation $360,000 # of machine hours
Quality control $57,600 # of inspections
Packaging $38, 400 # of units
Total overhead cost $600,000
# of setups # of machine hours # of inspections # of units
K2761 48 1,400 78 25,000
D3354 72 2,600 172 15,000
Total 120 4,000 250 40.000
Assume that before shifting to activity- based costing. Fenya Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two surge protectors follow.
Direct Labor Hours
K2761 32,000
D3354 18,000
Total 50,000
Compute the amount of overhead cost allocated to each type of surge protector when using direct labor hours as the allocation base.
Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.
Explain why the per unit overhead cost is lower for the higher-volume product when using ABC.
Explanation / Answer
Answer:
Predetermined overhead rate=600000/50000=$12 per DLH
Activity Pool Cost Cost driver Activity Overhead rate Machine setup 144000 No. of setups 120 1200 Machine operation 360000 No. of machine hours 4000 90 Quality control 57600 No. of inspections 250 230.4 Packaging 38400 No. of units 40000 0.96 Total overhead cost 600000Related Questions
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