Question

# Drilling Company uses activity-based costing and provides this information: Manufacturing Activity Cost Driver Driver Rate Materials...

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

 Manufacturing Activity Cost Driver Driver Rate Materials handling Number of parts \$ 0.3 Machinery Number of machine hours 56 Assembly Number of parts 3.10 Inspection Number of finished units 35

Drilling has just completed 85 units of a component for a customer. Each unit required 105 parts and 3.25 machine hours. The prime cost is \$1,350 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 85 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 \$185 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service, is \$305 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.

1.Total manufacturing costs and the unit costs of 85 units:

 Prime costs 85 x \$1350 \$114,750 Manufacturing overheads: Material handling 85 x 105 x \$0.3 \$2677.5 Machinery 85 x 3.25 x \$56 \$15,470 Assembly 85 x 105 x \$3.10 \$27667.5 Inspection 85 x \$35 \$2975 Total manufacturing costs \$163,540 No.of units 85 Cost per unit 163540 / 85 \$1924

2.Full product cost per unit, including upstream, manufacturing, and downstream activities:

 Particulars Amount Relative proportion Upstream activities \$185 185 / 2414 x 100 = 7.66% Manufacturing costs \$1924 1924 / 2414 x 100 = 79.71% Downstream activities \$305 305 / 2414 x 100 = 12.63% Full product cost per unit \$2414 100%