This exercise will deal with the costing of a product using a predetermined over
ID: 2538679 • 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:
The template is below
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
Static Budget Variable OH 7000 Static Budget Fixed OH 3,000 Static Budget DLH 1000 Static Budget Number of Units 4000 Fixed OH Alloction Basis DLH Estimated OH 1000000 Estimated DLH 40000 Predetermined OH rate 25.00 Per DLH Mono BI Time Required 0.75 1.00 Estimated Units 40,000 10,000 Estimated DLH 30,000 10,000 Estimated Overhead Expected Activity Activity Rate Maintaining Parts Inventory 1,80,000 225 800.00 Processing Purchase Orders 90,000 1000 90.00 Quality Control 2,30,000 5750 40.00 Machine related 5,00,000 10000 50.00 Estimated OH 10,00,000 Mono BI Total Maintaining Parts Inventory 75.00 150.00 225 Processing Purchase Orders 800 200 1,000 Quality Control 2,500 3,250 5,750 Machine related 4000 6000 10,000 A Predetermined OH Rate: Mono BI Direct Material 35.00 48.00 Direct Labor 9.00 12.00 OH Allocation(Basis DLH) 18.75 25.00 (25*0.75/25*1) Total Cost 62.75 85.00 B Activity Based: Mono BI Direct Material 35.00 48.00 Direct Labor 9.00 12.00 OH Allocation** 10.80 56.80 Working Note Total Cost 54.80 116.80 Working Note: Allocation of OH Mono BI Mono BI Maintaining Parts Inventory 60000 120000 (Driver* Activity Rate) Processing Purchase Orders 72000 18000 (Driver* Activity Rate) Quality Control 100000 130000 (Driver* Activity Rate) Machine related 200000 300000 (Driver* Activity Rate) Total 432000 568000 1000000 Units 40,000 10,000 PU 10.80 56.80
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