Question

Drilling Company uses activity-based costing and provides this information:

Manufacturing Activity	Cost Driver	Driver Rate
Materials handling	Number of parts	$	0.60
Machinery	Number of machine hours		51.00
Assembly	Number of parts		2.85
Inspection	Number of finished units		30.00

Drilling has just completed 80 units of a component for a customer. Each unit required 100 parts and 3 machine hours. The prime cost is $1,300 per finished unit. All other manufacturing costs are classified as manufacturing overhead.

Required:

1. Compute the total manufacturing costs and the unit costs of the 80 units just completed using ABC costing.

2. In addition to the manufacturing costs, the firm has determined that the total cost of upstream activities, including research and development and product design, is $180 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service, is $300 per unit. Compute the full product cost per unit, including upstream, manufacturing, and downstream activities. Also, compute the relative proportion of each main cost category.

Answer 1

Activity		Rate	Activity	OH cost
Material handling		0.6	8000	4800
Machinery		51	240	12240
Assembly		2.85	8000	22800
Insspection		30	80	2400
Total Overheads Cost				42240
Total Manufacturing cost and Unit product cost:
Prime cost (80 units @1300)				104000
Overheads cost				42240
Total Manufacturing cost				146240
Divide: Units				80
Unit Product cost				1828
Full Product Cost peer unit:
		Cost per unit		% of Total cost perr unit
Upstream		180		7.80%
Manufactuiring		1828		79.20%
Downstream		300		13.00%
TOTAL Product cost		2308		100.00%