a. Determine the cost of one unit each of ZX300 and SL500, assuming a company-wi

Question

a. Determine the cost of one unit each of ZX300 and SL500, assuming a company-wide overhead rate is used based on total machine hours.

b. b. Determine the cost of one unit of ZX300 and SL500, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.
c. Determine the cost of one unit of ZX300 and SL500, assuming activity-based overhead rates are used for polishing, materials handling, engineering, and inspection activities.
Chapter 5 Example Dollar Corporation has the following predicted indirect costs and cost drivers for 2016 for the given activity cost pools: Fabrication Department Finishing Department Cost Driver $61,000 15,000 5,000 25,000 Polishing $71,000 Machine hours Material moves Machine setups Materials handling 30,000 70,000 $171,000 $106,000 The following activity predictions were also made for the year: Machine hours 10,000 Material moves 3,000 Machine setups 700 Inspection hours 5,000 1,500 50 1,000 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Dollar's president, Charles Dollar, is trying to evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500 The company has been using a company-wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models: ZX300 SL500 S11,000S17,000 S5,000 $4.000 Direct materials cost Direct labor cost Machine hours (Fabrication) S00 Machine hours (Finishing) 200 Materials moves Machine setups Inspection hours 700 100 50 30 30 60

Explanation / Answer

Solution:-

(B) The cost of one unit of ZX300 and SL500, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments :-

Fabrication Dept O/H Rate :- 171000/10000 = 17.1 per macine hr

Finishing Dept O/H Rate :- 106000/5000 = 21.2 per machine hr

(A) the cost of one unit each of ZX300 and SL500, assuming a company-wide overhead rate is used based on total machine hours.

Company wide O/H Rate = 277000/15000=18.47 per machn hr

(C) the cost of one unit of ZX300 and SL500, assuming activity-based overhead rates are used for polishing, materials handling, engineering, and inspection activities

Particulars ZX300 SL500 Direct Material 11000 17000 Direct labour 5000 4000 Fabrication Dept (17.1*500) = 8550 (17.1*700) = 11970 Finishing Dept (21.2*200) = 4240 (21.2*100) = 2120 Total Cost for 100 units 28790 35090 Cost per unit 287.9 350.9

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