Question

The Manoli Company has collected the following data for use in calculating product costs:

Activity Data: (expected and actual)

rug cleaners         sweepers      total

units produced                   100,000                  250,000           350,000

prime costs                        $200,000                $584,000           $784,000

direct labor hours    10,000                              40,000                    50,000

machine hours                   20,000                              10,000                      30,000

number of setups    25                                     75                           100

inspection hours                1,600                      2,400            4,000

number of moves    140                         160               300

Departmental Data: (expected and actual)

molding         assembly      total

direct labor hours

rug cleaners            5,000            5,000            10,000

sweepers                          5,000            35,000                    40,000

total                                  10,000                    40,000                     50,000

machine hours

rug cleaners            17,000                    3,000           20,000

sweepers                          3,000            7,000           10,000

total                                  20,000                    10,000                     30,000

overhead costs

machining               $130,000      $ 40,000       $170,000

moving materials     50,000                    40,000                    90,000

setting up                          80,000                    20,000                     100,000

inspecting products 30,000                     40,000                    70,000

total                                  290,000        $140,000           $430,000

6. Refer to Figure 4-10. What is the unit product cost for rug cleaners using activity based costing?

a. $8.00

b. $ 7.26

c. $ 4.00

d. $ 2.95

Answer 1

Solution 6:

Determination of activity rate for each activity & allocation of overhead
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Rug cleaner		Sweeper
					Usage	Allocated Costs	Usage	Allocated Costs
Machining	$170,000.00	Machine hours	30000	$5.67	20000	$113,333.33	10000	$56,666.67
Moving Materials	$90,000.00	Nos of moves	300	$300.00	140	$42,000.00	160	$48,000.00
Setting up	$100,000.00	Nos of Setups	100	$1,000.00	25	$25,000.00	75	$75,000.00
Inspecting products	70000.00	Inspection hours	4000	$17.50	1600	$28,000.00	2400	$42,000.00
Total	$430,000.00					$208,333.33		$221,666.67

Total cost of rug cleaner = Prime cost + Allocated overhead = $200,000 + $208333.33 = $408,333.33

Nos of units produced = 100000

Unit product cost = $408,333.33 / 100000 = $4.08