ABC uses activity based costing where overhead from three different production d
ID: 2609257 • Letter: A
Question
ABC uses activity based costing where overhead from three different production departments are allocated to products as follows:
Activity Driver Activity Rate Product A Product B
Cutting Machine Hours $2.00 per machine hour 2,000 hours 3,000 hours
Assembly Assembly Hours $.50 per assembly hour 3,000 hours 5,000 hours
Painting Gallons of Paint $5.00 per gallon 1,500 gallons 1,300 gallons
Raw materials are directly followed to each product and the amount of raw materials used for Product A was $15,000 and for Product B was $12,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $5,000 and for product B was $7,000. There were 1,000 units of product A manufactured and 2,000 units of product B manufactured.
Calculate the total unit cost of making product A and product B using ABC. Show computations.
Explanation / Answer
Particulars Product A Product B (1000 Units) (2000 Units) Raw Material $15,000 $12,000 Direct Labour $5,000 $7,000 Prime Cost (A) $20,000 $19,000 Overhead Cost Cutting Expenses (B) $4,000 $6,000 (2000 Hrs X $ 2.00 Per Hrs) (2000 Hrs X $ 3.00 Per Hrs) Assempbly Expenses($ 5 Per Hrs) (,C) $1,500 $2,500 (3000 Hrs X $ 0.5 Per Hrs) (5000 Hrs X $ 0.5 Per Hrs) Painting Expenses (D) $7,500 $6,500 (1500 Gallon X $ 5 Per Gallon) (1300 Gallon X $ 5 Per Gallon) Total Unit Cost (A+B+C+D) $33,000 $34,000 Total Unit 1000 Units 2000 Units Per Unit Cost $33 $17
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