Question

Case 4

Natha Corporation manufacturers two types of travel mugs: Simple, and Sophisticated. The company budgets to produce 20,000 units of the Simple mugs and 10,000 units of the Sophisticated mugs. Manufacturing takes place in two production departments: Machining and Assembly. The Simple mugs are produced in batches of 200 units; however, due to the more intricate detail included on the Sophisticated mugs, they are produced in batches of 50 units.

The company’s Controller has asked you to compare the plantwide, departmental, and activity- based cost allocation methods. To assist in your analysis, the Controller has provided you with the budgeted cost information for the 2020 fiscal year.

Natha Budgeted Information for the Year Ended December 31, 2020
Machining Department	Simple	Sophisticated	Total
Direct materials cost	$90,000.00	$52,500.00	$142,500.00
Direct labour cost	45,000.00	30,000.00	75,000.00
Overhead costs			120,000.00
Machine hours	12,000	18,000	30,000
Direct labour hours	4,000	1,000	5,000
Assembly Department	Simple	Sophisticated	Total
Direct materials cost	$7,500.00	$15,000.00	$22,500.00
Direct labour cost	22,500.00	37,500.00	60,000.00
Overhead costs			40,000.00
Machine hours	6,000	4,000	10,000
Direct labour hours	3,500	500	4,000

Required:

3. Assume that management at Natha Corporation has decided to implement an activity- based costing system. You have identified three relevant activities. Information for each activity is shown below.

Quantity of Cost Driver
Activities	Cost Driver	Activity Cost	Simple	Sophisticated	Total
Materials handling	Number of parts	$45,000.00	6,000	9,000	15,000
Setups	Number of setups	$74,500.00	104	45	149
Inspection	Inspection hours	$40,500.00	7,500	1,500	9,000
		$160,000.00

1. Calculate the activity-based costing overhead rates.
2. Calculate the total manufacturing cost for each product line.
3. Calculate the total manufacturing cost per unit for each product line.

Answer 1

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