R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process
ID: 2534969 • Letter: R
Question
R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process The company produces two products, ABC and XYZ. R4F has provided their costing department the following information from this year's budget relating to the production of these two products ABC XYZ 40,000 60,000 Units to be produced Machine-hours expected Direct labor-hours expected Materials handling (number of 1,000 2,000 2,000 3,000 600 700 moves) Machine setups (number of setups) 200 150 The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured Direct Labor Wages $500,000 Materials Handling 40,000 Labor-related overhead 420,000 Machine setups 70,000 NOTE: Round all per-unit costs to nearest cent. What is the total expected overhead per unit allocated to product XYZ?Explanation / Answer
Expected overhead allocated to product XYZ can be calculated as follows:
Material Handling cost (Based on moves) = 40000/1300 x 700 = $21538.46
Labour related overhead ( Based on labour hours) = 420000/5000 x 3000 = $252,000
Machine Setups (Based on number of setups) = 70000/350 x 150 = 30000
Total overhead cost for 60000 units = $303538.46
So Overhead Cost per unit = $303538.46 / 60000 = $5.06
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