Question
In: Accounting
Stockin Company produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis...
Stockin Company produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.
| Activity Pool | Department Costs | Cost driver | ||
| Binding | $266,825.00 | Number of units | ||
| Printing | 800,084.25 | Machine hours | ||
| Product design | 175,104.00 | Change orders | ||
| General | 757,486.75 | None | ||
| Total overhead costs | $1,999,500.00 |
Other information is as follows:
| Tablets | Books | |||
| Units | 82,100 | 20,525 | ||
| Direct materials cost per unit | $4.00 | $12.00 | ||
| Direct labor cost per unit | $5.00 | $10.00 | ||
| Direct labor hours | 31,000 | 15,500 | ||
| Machine hours | 159,300 | 119,475 | ||
| Change orders | 1,824 | 3,648 |
(a)
Determine the unit product cost for Tablets using the traditional costing system.
(b)
Determine the unit product cost for Tablets using the activity-based costing system.
Solutions
Expert Solution
| a) Traditional Costing System for allocating overhead: | |||
| Calculation of overhead recovery rate | =Total Overhead Cost/Total Direct Labour Hours | ||
| =1999500/(31000+15500) | |||
| =1999500/46500 | |||
| Overhead recovery rate | =43 | ||
| Product Cost Sheet: | |||
| Particulars | Tablets | Books | |
| a) Direct Material Cost per unit | 4 | 12 | |
| b) Direct Labour Cost per unit | 5 | 10 | |
| c) Direct Labour Hours per unit | 0.3776 | 0.7552 | |
| (31000/82100) | (15500/20525) | ||
| d) Overhead Cost @ 43 per labour hour | 16.24 | 32.47 | |
| (0.3776*43) | (0.7552*43) | ||
| Cost per unit(a+b+d) | 25.24 | 54.47 | |
| b) Activity Based Costing system for allocating overhead: | |||
| Product Cost Sheet: | |||
| Particulars | Cost Driver | Tablets | Books |
| a)Units | 82100 | 20525 | |
| b) Total Direct Material Cost | 328400 | 246300 | |
| (82100*4) | (20525*12) | ||
| c)Total Direct Labour Cost | 410500 | 205250 | |
| (82100*5) | (20525*10) | ||
| d) Binding Cost | Number of Units | 213460 | 53365 |
| (266825/102625*82100) | (266825/102625*20525) | ||
| e) Printing Cost | Machine Hours | 457191 | 342893.25 |
| (800084.25/278775*159300) | (800084.25/278775*119475) | ||
| f) Product Design Cost | Change Orders | 58368 | 116736 |
| (175104/5472*1824) | (175104/5472*3648) | ||
| g) Total Cost(b+c+d+e+f) | 1467919 | 964544.25 | |
| h) Cost per unit(g/a) | 17.88 | 46.99 |
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