Accuracy lem 7-34 Plantwide versus Departmental Rates, Product-Costing Acivity-B

Question

Accuracy lem 7-34 Plantwide versus Departmental Rates, Product-Costing Acivity-Based Costing Rumsey Company produces speakers (model A and model B). Both products pass through two xducing departments, Model A's production is much more labour-intensive than that of model ro & Model B is also the more popular of the two speakers. The following data have been gathered for the two products: Product Data Model B 1,200,000 $600,000 6,000,000 90,000 1,800,000 Model A Units produced per year Prime costs Direct labour hours 120,000 (Continued)

Explanation / Answer

Req 1: Pre-determined OH rate: Estimated OH / Estimated labour hours Pre-determine dOH rate: $ 3960,000 /2190,000 = 1.8082 per DLH OH cost per unit Model A Model B labour hours 390000 1800000 OH rate 1.8082 1.8082 OH cost 705200 3254800 Divide numbr of Units 120000 1,200,000 OH per unit 5.876667 2.712333 Req 2: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Setup cost Runs 1080000 600 1800 Inspection cost Insp. Hours 840,000 12,000 70 Machining MH 960,000 1,320,000 0.727273 maintenance Maint. Hours 1,080,000 600,000 1.8 OH cost per unit Actvity Rate Model A Model B Activity OH Activity OH Setup cost 1800 240 432000 360 648000 Inspection cost 70 4800 336000 7200 504000 Machining 0.7273 120000 87240 1200000 872760 maintenance 1.8 60000 108000 540000 972000 Total OH 963240 2996760 Divide: Number of units 120,000 1,200,000 OH cost per unit 8.027 2.4973 Req 3: Model A Model B Deptt 1 Mahine hours 60000 1020000 Depp 2 Labour hours 780000 1620000 OH Deptt 1 @ 2.33 per Mh 139800 2376600 Deptt2 @ 0.60 per LH 468000 972000 Total OH 607800 3348600 Divide number of units 120000 1,200,000 OH cost per unit 5.065 2.7905 Req 4: ABC cositn is the most accurate of all the forms of costing as it takes in to consideration very minutely all the activities being undertaken in ech respective products. And then the OH are absorbed on the basis of activity consumed.

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