Question

# ABC uses activity based costing where overhead from three different production departments are allocated to products...

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.

 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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