Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and o

Question

Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Miller, the plant controller at UM, has decided to experiment with ABC and has asked you to help develop a simple ABC system that would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools along with appropriate cost drivers for each pool: Cost Pools Incoming inspection Production Machine setup Shipping Activity Drivers Direct material cost Machine-hours Setups Units shipped Costs $ 134,400 1,610,000 830,000 500,000 The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM

Explanation / Answer

a) overhead rate total estimated MOH/total estimated machine hours total estimated MOH Incoming inspection 134,400 Production 1,610,000 Machine setup 830,000 Shiiping 500,000 total estimated MOH 3,074,400 total estimated machine hours 60,000+80,000= 140,000 overhead rate = 3,074,400/140,000 21.96 products product 308 510 Direct materials 57,000 39,000 Direct labor 180,000 210,000 overhead allocated (60,000;80000)*21.96 1317600 1756800 total cost 1,554,600 2,005,800 units produced 30,000 20,000 cost per unit 51.82 100.29 products product 308 510 total cost 1,554,600 2,005,800 cost per unit 51.82 100.29 b) Incoming inspection 140% % 0f material dollars (134,400/96000) production 11.50 per machine hour (1,610,000/140000) Machine setup 5000 per setup (830000/166) Shipping 10 per unit (500,000/50000) products product 308 510 Direct materials 57,000 39,000 Direct labor 180,000 210,000 Incoming inspection 79800 54600 production 690000 920000 Machine setup 330000 500000 Shipping 300000 200,000 total cost 1,636,800 1,923,600 units produced 30,000 20,000 cost per unit 54.56 96.18 308 510 total cost 1,636,800 1,923,600 cost per unit 54.56 96.18

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