Question

Activity-Based Costing

Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools:

	Fabrication Department	Finishing Department	Cost Driver
Maintenance	$ 54,000	27,000	Machine hours
Materials handling	81,000	40,500	Material moves
Machine	189,000	13,500	Machine setups
Inspections	-	67,500	Inspection hours
Total	$ 324,000	$ 148,500

The following activity predictions were also made for the year:

	Fabrication Department	Finishing Department
Machine hours	5,000	2,500
Material moves	1,500	750
Machine setups	350	25
Inspection hours	-	500

It is assumed that the cost per unit of activity for a given activity does not vary between departments. Steampunk's president, Abner Punk, is trying to evaluate the company's product mix strategy regarding two of its product models, SW100 and SG150. The company has been using a company wide overhead rate based on machine hours but is considering switching to either department rates of activity-based rate. The production manager has provided the following data for the production of a batch of 100 units for each of these models:

	SW100	SG150
Direct materials cost	$ 18,000	$ 27,000
Direct labor cost	$ 7,200	$ 5,400
Machine hours (Fabrication)	250	350
Machine hours (Finishing)	100	50
Materials moves	20	40
Machine setups	5	10
Inspection hours	15	30

a. Determine the cost of one unit each of SW100 and SG150, assuming a company-wide overhead rate is used based on total machine hours.

Round rate to two decimal places.

Overhead rate based on total machine hours: Answer

per machine hour

Use rounded overhead rate calculated about for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

b. Determine the cost of one unit of SW100 and SG150, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.

Round to two decimal places, if applicable.

Overhead rate based on machine hours for Fabrication Dept.: Answer

per machine hour.

Overhead rate based on machine hours for Finishing Dept.: Answer

per machine hour.

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Fabrication Dept.	Answer	Answer
Finishing Dept.	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

c. Determine the cost of one unit of SW100 and SG150, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.

Round rate to two decimal places, if applicable.

Activity-based overhead rates:
Maintenance	Answer
Materials handling	Answer
Machine setup	Answer
Inspection activities	Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Maintenance activity	Answer	Answer
Maintenance handling activity	Answer	Answer
Machine setups activity	Answer	Answer
Inspections activity	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

Answer 1

1. Overhead rate based on machine hours=$ 63 per machine hour(see note 1 below)

Calculation of the Cost per unit:

• SW 100=$ 472.50 per unit(see note 2 below)
• SG 150=$ 576 per unit(see note 2 below)

Notes:

1. Calculation of company –wide overhead rate

Total Overheads=$ 472500

Total Machine hours=7500 machine hours

Overheads per machine hour=$ 472500/7500 machine hours=$ 63per machine hour

2. Calculation of Cost per unit using company –wide overhead rate

Particulars	SW 100	SG 150
Direct Materials	$ 18000	$ 27000
Direct Labor Cost	$ 7200	$ 5400
Overheads	$ 22050 ($ 63*350 Hours)	$ 25200 ($ 63*400 Hours)
Total Cost of a Batch	$ 47250	$ 57600
Number of units	100	100
Total Cost per unit	$ 472.50	$ 576

2. Overhead rate based on machine hours for Fabrication Dept.= $ 64.8 per machine hour.(See Note Below)

Overhead rate based on machine hours for Finishing Dept.: $ 59.4 per machine hour. .(See Note Below)

Notes:

1. Total overheads of Fabrication Dept=$ 324000

Total machine hours for Fabrication Dept=5000 hours

Overhead Cost per hour=$ 64.8 per machine hour

Total overheads of for Finishing Dept=$ 148500

Total machine hours for Finishing Dept=2500 hours

Overhead Cost per hour=$ 59.4 per machine hour

Calculation of Cost per unit

Particulars	SW 100	SG 150
Direct Materials	$ 18000	$ 27000
Direct Labor	$ 7200	$ 5400
Manufacturing Overhead
Fabrication Department	$ 16200 ($ 64.8 per hour*250 Hours)	$ 22680 ($ 64.8 per hour*350 Hours)
Finishing Department	$ 5940 ($ 59.4 per hour* 100 hours)	$ 2970 ($ 59.4 per hour* 50 hours)
Total cost per Batch	$ 47340	$ 58050
Number of units per batch	100	100
Cost per unit	$ 473.4	$ 580.5

3. Calculation of Activity based overhead rates(See Note 1 below)

Activity	Rate
Maintenance	$ 10.8 per machine hour hour
Material handling	$ 52 per material move
Machine setup	$ 540 per machine setup
inspection	$ 135 per inspection hour

Note 1:

Calculation of activity based overhead rate

Activity (A)	Cost pool(B)	Cost Driver (C)	Cost /Cost driver(D)=(B)/(C )
Maintenance	$ 81000	Machine hours (7500 hours)	$ 10.8 per machine hour hour
Material Handling	$ 121500	Material moves (2250 material moves)	$ 52 per material move
Machine Setup	$ 202500	Machine setups (375 machine setups)	$ 540 per machine setup
Inspection	$ 67500	Inspection hours (500 inspection hours)	$ 135 per inspection hour
Total	$ 472500

Calculation of cost per unit

Particulars	SW 100	SG 150
Direct materials	$ 18000	$ 27000
Direct labor	$ 7200	$ 5400
Maintenance	$ 3780 ($ 10.8 per machine hour hour* 350 hours)	$ 4320 ($ 10.8 per machine hour hour *400 hours)
Material handling	$ 1040 ($ 52 per material move* 20 moves)	$ 2080 ($ 52 per material move* 40 moves)
Machine setups	$ 2700 ($ 540 per machine setup*5 Seups)	$ 5400 ($ 540 per machine setup* 10 setups)
Inspection	$ 2025 ($ 135 per inspection hour* 15 hours)	$ 4050 ($ 135 per inspection hour* 30 hours)
Total Cost	$ 34745	$ 48250
Number of units	100	100
Cost per unit	$ 347.45	$ 482.5