Posted: December 21st, 2015
The cost accountant of ABC Manufacturing attended a workshop on activity-based costing and was impressed by the results. After consulting with the production personnel, he prepared the following information on cost drivers and the estimated volume for each driver.
Activity | Cost driver | Cost driver volume | Total | ||
Machining | Ace | Best | Champ | ||
Setup | Number of setups | 125 | 75 | 50 | 250 |
Machining | Machine hours | 2,500 | 1,500 | 2,000 | 6,000 |
Assembly | |||||
Assembly | Direct labor hours | 25,000 | 15,000 | 5,000 | 45,000 |
Inspection | Number of inspections | 50 | 25 | 25 | 100 |
The cost accountant also determined how much overhead costs were incurred in each of the four activities as follows:
Activity | Overhead costs |
Machining | |
Setup | $150,000 |
Machining | 750,000 |
Total Machining department overhead | $900,000 |
Assembly | |
Assembly | $360,000 |
Inspection | 90,000 |
Total Assembly department overhead | $450,000 |
Total overhead costs | $1,350,000 |
Required:
a. Determine the cost driver rate for each activity cost pool.
b. Use the activity-based costing method to determine the unit cost for each product.
c. Summarize and comment the results.
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