(9. Use the scenario data to fill in the raw data section) Problem Traditional C

Question

(9. Use the scenario data to fill in the raw data section) Problem Traditional Costing Versus Activity-Based Costing Goal: Create an Excel spreadsheet to compare traditional costing versus activity-based costing. Use the results to answer questions about your findings Scenario: Suppose Sunstar Corporation is one of Dell's circuit board suppiers Sunstar currently uses traditional costing for making business decisions. At the urging of Del, however, the company has decided to move to activity-based costing for circuit board production related to products PCB124 and PCB136. As one of the company's accountants you have been asked to prepare a spreadsheet comparing the two costing methods for the next company board meeting. Your supervisor has given you the following quarterly data: Total Indirect Costs for the Quarter Assembly $630,000 Soldering $270,000 Inspection $160,000 PCB124 PCB136 Direct costs (materials, labor) 162,400 $178,240 Machine hours (assembly) 480 1,080

Explanation / Answer

Answer a. Traditional Costing Predetermined Overhead Rate = $1,060,000 (Total Overhead) / 35,000 hrs (direct Labor hrs) Predetermined Overhead Rate = $679.49 per mach. hr. Allocation of Overhead: Total Overhead PCB124 - 480 Mach Hrs X $679.49                326,154 PCB136 - 1080 Mach Hrs X $679.49                733,846 Total Overhead            1,060,000 Calculation of Manufacturing Cost per Unit Under Traditional Costing PCB124 PCB136 Direct Costs                162,400                   178,240 Overhead Costs                326,154                   733,846 Total Cost                488,554                   912,086 No. of Units Produced                    6,000                        4,000 Overhead Cost Per Unit                    81.43                      228.02 Answer b. ABC Costing Activity Overhead Cost Driver Quantity Allocation Rate Assembly                630,000                        1,560 mach Hrs                      403.85 per mach hr Soldering                270,000                      10,000 Units                        27.00 per Units Inspection                160,000                      14,000 Testing hrs                        11.43 per testing hr Total            1,060,000 Assigning Overhead Cost to Product Model Using ABC Method Activity Based Overhead Rate PCB124 PCB136 Cost Driver Incurred OH Allocated Cost Driver Incurred OH Allocated Assembly                  403.85 per mach hr                          480 mach Hrs                 193,846         1,080 mach Hrs              436,154 Soldering                    27.00 per Units                       6,000 Units                 162,000         4,000 Units              108,000 Inspection                    11.43 per testing hr                       6,000 Testing hrs                   68,571         8,000 Testing hrs                91,429 Total Overhead Cost                 424,418              635,582 Calculation of Total Manufacturing Cost per Unit Under ABC Costing PCB124 PCB136 Direct Costs                162,400                   178,240 Ovrehead Costs: Assembly                193,846                   436,154 Soldering                162,000                   108,000 Inspection                  68,571                      91,429 Total                586,818                   813,822 No. of Units Produced                    6,000                        4,000 Overhead Cost Per Unit                    97.80                      203.46 Answer c. Gourmet Espresso Cost Per Unit - Traditional Costing                    81.43                      228.02 Cost Per Unit - Activity Costing                    97.80                      203.46 Over Costed (Under Costed)                  (16.38)                        24.57

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