This exercise will deal with the costing of a product using a predetermined over
ID: 2537420 • Letter: T
Question
This exercise will deal with the costing of a product using a predetermined overhead rate and Activity Based Costing (ABC). Please note the different results from using the different methods.
The Sample Company wants to compare the results from the use of a predetermined overhead rate versus Activity Based Costing (ABC). The following are the estimated costs:
Estimated Manufacturing Overhead
$ 1,000,000.00
Estimated direct labor hours (DLH)
40000
Predetermined Overhead Rate
$ 25.00
per DLH
Mono-Relay
Bi-Relay
Time to Make One Unit
0.75
1
Hours
Estimated Units Produced
40000
10000
Estimated Total DLH
30000
10000
Direct Materials
$ 35.00
$ 48.00
Direct Labor $12 per hour
$ 9.00
$ 12.00
Estimated Overhead
Expected Activity
Maintaining Parts Inventory
$ 180,000.00
225
Processing Purchase Orders
$ 90,000.00
1000
Quality Control
$ 230,000.00
5750
Machine related
$ 500,000.00
10000
$ 1,000,000.00
Mono-Relay
Bi-Relay
Total
Maintaining Parts Inventory
75
150
225
Processing Purchase Orders
800
200
1000
Quality Control
2500
3250
5750
Machine related
4000
6000
10000
Compute the direct material, direct labor, overhead and total unit cost using the following:
Predetermined overhead rate
Activity Based Costing (ABC)
Please use the following Excel template:
Here is the link to the Template I couldn't upload the image here
<a href="http://tinypic.com?ref=5mww0x" target="_blank"><img src="http://i67.tinypic.com/5mww0x.png" border="0" alt="Image and video hosting by TinyPic"></a>
http://tinypic.com/r/5mww0x/9
Estimated Manufacturing Overhead
$ 1,000,000.00
Estimated direct labor hours (DLH)
40000
Predetermined Overhead Rate
$ 25.00
per DLH
Mono-Relay
Bi-Relay
Time to Make One Unit
0.75
1
Hours
Estimated Units Produced
40000
10000
Estimated Total DLH
30000
10000
Direct Materials
$ 35.00
$ 48.00
Direct Labor $12 per hour
$ 9.00
$ 12.00
Explanation / Answer
Answer
Estimated Manufacturing Overhead
$1000000
Estimated direct labor hours (DLH)
40000
Predetermined Overhead Rate
$25 per DLH
Mono-Relay
Bi-Relay
Time to Make One Unit
0.75
1
Estimated Units Produced
40000
10000
Estimated Total DLH
30000
10000
Mono-Relay
Bi-Relay
Direct Materials
$35
$48
Direct Labor $12 per hour
$9
$12
Manufacturing Overhead
[0.75 x $25] $18.75
[1 x $25] $25
Total Unit Cost
$62.75
$85
Estimated Overhead
Expected Activity
Rate
Maintaining Parts Inventory
$180000
225
$800
per part type
Processing Purchase Orders
$90000
1000
$90
per purchase order
Quality Control
$230000
5750
$40
per test
Machine related
$500000
10000
$50
per machine hours
Total Overhead
$1000000
Mono-Relay
Bi-Relay
Total
Maintaining Parts Inventory
75
150
225
Processing Purchase Orders
800
200
1000
Quality Control
2500
3250
5750
Machine related
4000
6000
10000
Cost Allocation on the basis of Above Rates
Mono-Relay
Bi-Relay
Activity Rate
No. of activity
Cost Allocated
No. of activity
Cost Allocated
Maintaining Parts Inventory
$800
75
$60000
150
$120000
Processing Purchase Orders
$90
800
$72000
200
$18000
Quality Control
$40
2500
$100000
3250
$130000
Machine related
$50
4000
$200000
6000
$300000
Total
$432000
$568000
Overhead cost per unit
Mono-Relay
Bi-Relay
Overhead cost allocated
432000
568000
Units
40000
10000
Overhead per unit
$10.8
$56.8
Cost per unit
Mono-Relay
Bi-Relay
Direct Materials
$35
$48
Direct Labor $12 per hour
$9
$12
Manufacturing Overhead [allocated as per ABC]
$10.8
$56.8
Total Unit Cost
$54.8
$116.8
Estimated Manufacturing Overhead
$1000000
Estimated direct labor hours (DLH)
40000
Predetermined Overhead Rate
$25 per DLH
Mono-Relay
Bi-Relay
Time to Make One Unit
0.75
1
Estimated Units Produced
40000
10000
Estimated Total DLH
30000
10000
Mono-Relay
Bi-Relay
Direct Materials
$35
$48
Direct Labor $12 per hour
$9
$12
Manufacturing Overhead
[0.75 x $25] $18.75
[1 x $25] $25
Total Unit Cost
$62.75
$85
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