Lift Jack company seven activity cost poolsand two products. It excepts 200,000u

Question

Lift Jack company seven activity cost poolsand two products. It excepts 200,000units of its automobile seissors jack and 80,000units of its hydraulic jack. Having identified its activity cost pools and the cost drivers for each cost pool. Lift Jack company accumulated the following data relative to those activity cost pools and cost drivers. Tradionally the manufactural overhead cost has been applied to work in process based on Direct Labour hours. Under the trtadional method what is the overhead is to each scissors jack and hydraulic jack. Prepare a schedule showing the computations of the activity -based overhead rates per cost driver under ABC. Prepare a scheduled assigning each activity's overhead cost to the two products using ABC. Compute the overhead cost per unit for each product using ABC. Comment on the comparative overhead cost per unit.

Explanation / Answer

a) Estimated manufacturing overhead 6800000 Total number of hours 800000 overhead rate per direct labor hour 8.5 b) Activity Cost Pool Estimated OH Total ABC per cost driver Ordering and receiving 200000 2500 80.00 Machine setup 600000 1200 500.00 Machining 2000000 800000 2.50 Assembling 1800000 3000000 0.60 Inspecting & testing 700000 35000 20.00 Painting 300000 3000000 0.10 Supervising 1200000 200000 6.00 c) Activity Cost Pool Estimated OH Total Scissors Hydraulic Ordering and receiving 200000 2500 80000 120000 Machine setup 600000 1200 250000 350000 Machining 2000000 800000 750000 1250000 Assembling 1800000 3000000 1080000 720000 Inspecting & testing 700000 35000 400000 300000 Painting 300000 3000000 180000 120000 Supervising 1200000 200000 780000 420000 Total 3520000 3280000 d) Scissors Hydraulic Total overhead 3520000 3280000 Number of units produced 200000 80000 overhead cost per unit 17.6 41 e) Though the total overhead cost is lower for hydraulic jack , the overhead cost per unit is higher because the number of units produced are lower and the overhead costs get allocated to a lower base

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