Question

A manufacturer manufactures two types of engineering diagnostic equipment used in construction. The two products are based on different technologies, x-ray and ultrasound, but are manufactured in the same factory. The manufacturer has computed the manufacturing cost of the x-ray and ultrasound products by adding together direct materials, direct labor, and overhead cost applied based on the number of direct labor hours. The factory has three overhead departments that support the single production line that makes both products. Budgeted overhead spending for the departments is as follows:
Department
Engineering	Material Handling	Setup	Total
7,500	6,000	3,500	17,000
Budgeted manufacturing activities and costs for the period are as follows:
Activity	X-Ray	Ultrasound
Units produced and sold	80	130
Direct materials used	$6,000	$10,000
Direct labor hours used	105	360
Direct labor cost	$4,000	$13,000
Number of parts used	400	600
Number of engineering changes	3	2
Number of product setups	9	8
The budgeted cost to manufacture one ultrasound machine using the activity-based costing method is

Answer 1

Cost Using ABC
Direct Material	10,000.00
Direct Labor	13,000.00
Overheads
Engineering = Cost*Number of Engineering Changes/Total Engineering Changes	3,000.00
Material Handling = Cost*Number of parts used/Total Parts used	3,600.00
Set up = Cost*Number of set ups/Total Setups	1,647.06
Total cost of Ultrasound	31,247.06
Number of units	130.00
Cost per unit	240.36