Question

Use the following information regarding Musketeer Novelties:

Activity Activity Costs Cost driver

Product design $212,000 1,500 design hours

Product scheduling $180,000 400 Set ups

Machining $600,000 5,000 machine hours

Material Handling $160,000 4,000 Pallet moved

Cost and activity with procuring 2,000 units of a Blueblob Bobblehead are as follows:

Direct Materials: $5,400

Direct Labor: $1,200

Design Hours: 5

Set-Ups: 3

Labor Hours 40

Machine Hours 18

Pallets Moved 10

United produced 400

1.) Develop activity rates for each of the four activities of Musketeer Novelties

2.) What is the product cost for ONE Blueblob Bobblehead using ABC (ACTIVITY BASE COSTING) rates for applying overhead?

3.)What is the product cost of one Blueblob bobblehead if Musketeer Novelties uses a plant-wide overhead rate based on machine hours. (assume 5,000 machine hours plant-wide)

Answer 1

1)

Activity	Activity Cost $	Cost Driver	Activity Rates $
Product design	212000	1500	141.33	per design hour
Product scheduling	180000	400	450	per set up
Machining	600000	5000	120	per machine hour
Material handling	160000	4000	40	per pallet moved

2)

Activity	Activity Rates $	Cost Driver	Allocated Overhead $
Product design	141.33	5	706.65
Product scheduling	450	3	1350
Machining	120	18	2160
Material handling	40	10	400
Total $			4616.65

Direct materials	5400
Direct labor	1200
Overheads	4616.65
Total cost $	11216.65
Number of units produced	2000
Unit product cost $	5.61

3) Plant-wide overhead rate = Total overheads/Total machine hours = ($212000 + $180000 + $600000 + $160000)/5000 = $1152000/5000 = $230.40

Overhead applied = 18 x $230.40 = $4147.20

Direct materials	5400
Direct labor	1200
Overheads	4147.2
Total cost $	10747.2
Number of units produced	2000
Unit product cost $	5.37

Note: Amounts are rounded off to 2 decimal places in the absence of specific instructions regarding the same. Kindly round off as required.