Question

Question #6:

Birds and Such, Inc. manufactures birdhouses and uses an activity-based costing system. The following information is provided for the month of May:

Activity	Estimated Indirect Activity Costs	Allocation Base	Estimated Quantity of Allocation Base
Materials handling	$ 3,500	Number of parts	5,000 parts
Assembling	$12,000	Number of parts	5,000 parts
Packaging	$5,750	Number of birdhouses	1,250 birdhouses

                        Each breadbox consists of 4 parts, and the direct materials cost per birdhouse is $7.00.

                        What is the cost of materials handling and assembling per breadbox?

Answer 1

cost of materials handling and assembling per box = $12.40

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Materials handling	Number of part	$ 3,500	5000	$               0.70	Per part
Assembling	Number of part	$ 12,000	5000	$               2.40	Per part

.

Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Materials handling	$             0.70	4.00	$ 2.80
Assembling	$             2.40	4.00	$ 9.60
Total Overheads per unit			$               12.40