Question

In: Accounting

6. Julio produces two types of calculator, standard and deluxe. The company is currently using a...

6. Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow:

Standard Model Deluxe Model
Number of machine hours 25,800 30,800
Number of material moves 590 890
Number of setups 70 540


Total estimated overhead costs are $347,100, of which $170,200 is assigned to the material handling cost pool and $176,900 is assigned to the setup cost pool.

Required:
1.
Calculate the overhead assigned to each product using the traditional cost system.
2. Calculate the overhead assigned to each product using ABC.

Solutions

Expert Solution

Answer:

1.Overhead assigned to each product using the Traditional cost system

Pre-determined overhead rate = Total estimated overhead costs / Total no. of Machine hours

Total estimated overhead costs = $347,100

Total no. of Machine hours = 25,800 hours + 30,800 hours = 56,600 hours

Pre-determined overhead rate = $347,100 / 56,600 hours

                                           = $6.13 per machine hour

Overheads assigned to Standard Model = Pre-determined overhead rate * No. of Machine hours used

                                                          = $6.13 per machine hour * 25,800 machine hours

                                                          = $158,219

Overheads assigned to Deluxe Model = Pre-determined overhead rate * No. of Machine hours used

                                                       = $6.13 per machine hour * 30,800 machine hours

                                                       = $188,881

2.Overhead assigned to each product using ABC

From the above data it is evident that

Overheads assigned to Standard Model under ABC = $88,150

Overheads assigned to Deluxe Model under ABC = $258,950


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