Question

Category		Total Pooled Cost			Types of Costs	Cost Driver
Unit		$	705,200		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			905,300		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			211,300		Research and development	Time spent by research department
Facility			418,200		Rent, general utilities, maintenance, facility depreciation, admin. salaries	Square footage

     
Additional data for each of the product lines follow:     

	Commercial				Home				Miniature				Total
Direct materials cost	$	36.70	/unit		$	24.60	/unit		$	30.30	/unit			—
Direct labor cost	$	14.00	/hour		$	14.00	/hour		$	18.80	/hour			—
Number of labor hours		7,000				12,900				2,500				22,400
Number of machine hours		10,000				49,000				27,000				86,000
Number of production orders		290				1,800				910				3,000
Research and development time		10	%			17	%			73	%			100	%
Number of units		14,000				48,000				13,000				75,000
Square footage		15,000				55,000				12,000				82,000

    
Required

Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.

Answer 1

Solution:

Determination of activity rate for each activity, allocation of overhead and Overhead cost per unit
Category	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Commercial		Home		Miniature
					Usage	Allocated Costs	Usage	Allocated Costs	Usage	Allocated Costs
Unit	$705,200.00	Machine hours	86000	$8.20	10000	$82,000	49000	$401,800	27000	$221,400
Batch	$905,300.00	Nos of production orders	3000	$301.77	290	$87,512	1800	$543,180	910	$274,608
Product	$211,300.00	Time spent by research department			10%	$21,130	17%	$35,921	73%	$154,249
Facility	$418,200.00	Square Footage	82000	$5.10	15000	$76,500	55000	$280,500	12000	$61,200
Total	$2,240,000.00					$267,142		$1,261,401		$711,457
Nos of units						14000		48000		13000
Allocated overhead per unit						$19.08		$26.28		$54.73

Computation of Total cost and unit product cost
Particulars	Commercial	Home	Miniature	Total
Direct material	$513,800	$1,180,800	$393,900	$2,088,500
Direct labor	$98,000	$180,600	$47,000	$325,600
Factory overhead	$267,142	$1,261,401	$711,457	$2,240,000
Total Cost	$878,942	$2,622,801	$1,152,357	$4,654,100
Nos of units	14000	48000	13000
Unit Product Cost	$62.78	$54.64	$88.64