Please show all work that was used to find answers. 8. Activity Based Costing Pr
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Please show all work that was used to find answers.
8. Activity Based Costing Problem II - Show your work [50 points] Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct labor hours. Anticipated overhead and direct labor time for the upcoming accounting period are S1,600,000 and 25,000 hours, respectively. Information about the company's products follows. Regular- Estimated production volume: 3,000 units Direct materials cost: $24 per unit Direct labor per unit: 3 hours at S12 per hour Deluxe- Estimated production volume: 4,000 units Direct materials cost: $60 per unit Direct labor per unit: 4 hours at S12 per hour Scott's overhead of S1,600,000 can be identified with three major activities: order processing (5200,000), machine processing ($1,200,000), and product inspection (S200,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively Data relevant to these activities follow OrdersMachine Hours Inspection 16,000 40,000 ProcessedWorked Hours 4,000 Rcgular Deluxe Total 500 10,000 a. [10 points] Compute the overhead rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system. b. [20 points] Using activity-based costing, compute the manufacturing costs PER UNIT of Regular and Deluxe if the expected manufacturing volume is attained. c. [20 pointsl How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional costing and applied overhead solely on the basis of direct labor hours?Explanation / Answer
Answer
No. of activities of cost driver
Overhead
Total Costs (A)
Regular (B1)
Deluxe (B2)
TOTAL (C=B1+B2)
ABC Overhead rate (A/C)
Order Processing
200000
320
180
500
400
per order processed
Machine processing
1200000
16000
24000
40000
30
per machine hour worked
Product Inspection
200000
4000
6000
10000
20
per inspection hours
TOTAL overhead cost
1600000
Allocation of Overhead cost to each product using ABC overhead rate
Regular
Deluxe
Overhead
TOTAL COST to be allocated
Overhead rate as per ABC (A)
No. of activities (B)
Cost Allocated (A x B)
No. of activities (C)
Cost Allocated (A x C)
Order Processing
200000
400
320
128000
180
72000
Machine processing
1200000
30
16000
480000
24000
720000
Product Inspection
200000
20
4000
80000
6000
120000
TOTAL overhead cost
1600000
688000
912000
Units
3000
Units
4000
Cost per unit
$229.3333
$228
Unit manufacturing cost of each product
Regular
Deluxe
Direct Material per unit
24
60
Direct Labor per unit
36
48
Allocated overhead cost per unit
229.3333
228
Total manufacturing cost per unit
$ 289.3333
$ 336
A
Overhead total
1600000
B
Total hours
25000
C=A/B
Overhead per direct labor hour
$64
Working
Regular
Deluxe
A
Units
3000
4000
B
Labor hours per unit
3
4
C=A x B
Total direct labor hours
9000
16000
D
Overhead rate per direct labor hour
$64
$64
E= C x D
Total overhead allocated
$576000
$1024000
No. of activities of cost driver
Overhead
Total Costs (A)
Regular (B1)
Deluxe (B2)
TOTAL (C=B1+B2)
ABC Overhead rate (A/C)
Order Processing
200000
320
180
500
400
per order processed
Machine processing
1200000
16000
24000
40000
30
per machine hour worked
Product Inspection
200000
4000
6000
10000
20
per inspection hours
TOTAL overhead cost
1600000
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