Question
In: Accounting
PROBLEM - "ABC" A company manufactures Product X and Product Y in the same factory. Overhead...
PROBLEM - "ABC"
A company manufactures Product X and Product Y in the same factory.
Overhead costs are currently allocated using direct labor hours,
but the accounting manager has recommended an activity-based
costing system using the data in the table provided below. Answer
the following two questions: a) determine the amount of overhead to
be allocated to each type of product under activity-based costing;
b) determine the amount of overhead to be allocated to each type of
product using labor hours as the allocation base. Assume 60,000
labor hours were used to manufacture Product X and 20,000 labor
hours were used to manufacture Product Y.
|
Activity Level |
|||||||
|
Activity |
Cost Driver |
Cost |
ProductX |
Product Y |
|||
|
Production Setup |
# of production setups |
$ 100,000 |
12 |
8 |
|||
|
Material Handling |
# of parts |
$ 20,000 |
70 |
30 |
|||
|
Shipping |
# of units shipped |
$ 160,000 |
120,000 |
140,000 |
|||
|
TOTAL OVERHEAD |
$ 280,000 |
||||||
Solutions
Expert Solution
| a.) | Product X | Product Y | |
| Production Setup | 60,000 | 40,000 | |
| Material Handling | 14,000 | 6,000 | |
| Shipping | 73,846 | 86,154 | |
| Overhead allocated $ | 147,846 | 132,154 | |
| Working | |||
| Product X | Product Y | ||
| Production Setup | =100000*12/20 | =100000*8/20 | |
| Material Handling | =20000*70/100 | =20000*30/100 | |
| Shipping | =160000*120000/260000 | =160000*140000/260000 | |
| Overhead allocated | 147,846 | 132,154 | |
| b.) | Predetermined overhead rate | $ 3.50 | =280000/(60000+20000) |
| ( Per Labor Hour ) | |||
| Overhead allocated | |||
| Product X | $ 210,000 | =3.5*60000 | |
| Product Y | $ 70,000 | =3.5*20000 | |
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