oveshead cost ceater that perfoems services oaly to in-house manufacturing deper
ID: 2518233 • Letter: O
Question
oveshead cost ceater that perfoems services oaly to in-house manufacturing depertments ( peojects. Because the costs of operating tdhe RAD depateat have been spiraling detensine the charges for both outsiders and the in-house users of the departmeat's services foor differest peodact liacs), all of wtich produce ap to absarb the iacreasing costs. However.(1) Dservices to outsiders, and (2) it needs to gan castel ofts R&D; cosa Managemeat decides to mplement an activity-based costing syt- order so Merket malysrs Product design 2,350.,000 Product development 3,600,000 1,400,000 actin es are of analy sas Market analysa Product desis Prodacn develepesennNusber of products Naaber of designs2,500 designs 90 prodacts Pronetype testing 1,800 hours of emarket alyus time, was povided 280 sgss relatiag to 10 products, asd requested 92 eng on a contact that would consane 800 hours of analyss tme, require 178 designs relaring to 3 preducts and reh (c) Hew much cost w pricing an R&D; bud wih as ou 0 +74%Explanation / Answer
Answer a. ABC Costing Activity Overhead Cost Driver Quantity Allocation Rate Market Analysis 1,050,000 15,000 hours 70.00 per hour Product Design 2,350,000 2,500 designs 940.00 per design Product Development 3,600,000 90 products 40,000.00 per product Prototype Testing 1,400,000 500 tests 2,800.00 per tests Total 8,400,000 Answer b. Assigning Overhead Cost to In House Manufacturing Department Using ABC Method Activity Based Overhead Rate In House Manf. Department Cost Driver Incurred OH Allocated Market Analysis 70.00 per hour 1,800 hours 126,000 Product Design 940.00 per design 280 designs 263,200 Product Development 40,000.00 per product 10 products 400,000 Prototype Testing 2,800.00 per tests 92 tests 257,600 Total Overhead Cost 1,046,800 Answer c. Assigning Overhead Cost to In R & D Bid Using ABC Method Activity Based Overhead Rate R & D Bid Cost Driver Incurred OH Allocated Market Analysis 70.00 per hour 800 hours 56,000 Product Design 940.00 per design 178 designs 167,320 Product Development 40,000.00 per product 3 products 120,000 Prototype Testing 2,800.00 per tests 70 tests 196,000 Total Overhead Cost 539,320 Answer d. The benefit of applying activity-based costing to Ideal Manufacturing’s R&D centerswould be to ensure to have a fair basis for cost allocation to the various R&D activities whether for in-house or outside purposes.
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