Question

Leo Company has identified the following overhead costs and cost drivers for next year:

Overhead Item	Expected Costs	Cost Driver	Maximum Quantity
Setup costs	$1,152,000	Number of setups	4,800
Ordering costs	320,000	Number of orders	40,000
Maintenance	1,600,000	Machine-hours	64,000
Power	160,000	Kilowatt-hours	400,000

The following is one of the jobs completed during the year:

	Job 201
Direct materials	$18,000
Direct labor	$24,000
Units completed	750
Direct labor-hours	180
Number of setups	12
Number of orders	16
Machine-hours	360
Kilowatt-hours	180

Required

Determine the unit cost for job 201 using the four cost drivers (i.e., using Activity-Based Costing).

Answer 1

Solution

Cost per unit

$ 72.11

Working

	Job 201
Direct material	$         18,000.00
Direct labor	$         24,000.00
Overhead allocated	$         12,080.00
Total cost	$         54,080.00
Units	750
Cost per unit	$                  72.11

.

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Setup costs	Number of setup	$ 1,152,000	4800	$          240.00	Per setup
Ordering costs	Number of order	$ 320,000	40000	$               8.00	Per order
Maintenance	Number of machine hour	$ 1,600,000	64000	$             25.00	Per machine hour
Power	Number of kilowatt hour	$ 160,000	400000	$               0.40	Per kilowatt hour

.

Cost assigned to Job 201
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Setup costs	$                               240.00	12.00	$               2,880.00
Ordering costs	$                                   8.00	16.00	$                   128.00
Maintenance	$                                 25.00	360.00	$               9,000.00
Power	$                                   0.40	180.00	$ 72.00
Total Overheads assigned	$ 12,080