Question

Part 1

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.

Part 2

MNO uses activity based costing where overhead from three different cost centers are allocated to products based upon the following:

Activity                 Driver - Overhead Costs - Product A - Product B

Setup                    Production Runs - $100,000 - 80 productions runs - 20 production runs

Inspection           Inspection Hours - $300,000 - 200 hours - 100 hours

Machining           Machine Hours - $800,000 - 5,000 hours - 3,000 hours

Raw materials are directly followed to each product and the amount of raw materials used for Product A was $300,000 and for Product B was $200,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $100,000 and for product B was $50,000. There were 12,000 units of product A manufactured and 10,000 units of product B manufactured.

Calculate the total unit cost of making product A and product B using ABC. Show computations.

If MNO uses one plant wide rate to allocate all the overhead based upon direct labor direct labor hours and product A used 20,000 direct labor hours and product B used 10,000 direct labor hours calculate the total unit cost of product A and product B.

Answer 1

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