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.

Answer 1

	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