In: Accounting
Interior Exterior
Units sold 3,200 1,800
Selling price $ 125 $ 200
Direct material cost per unit $ 30 $ 45
Direct manufacturing labor cost per hour $ 16 $ 16
Direct manufacturing labor-hours per unit 1.50 2.25
Production runs 40 85
Material moves 72 168
Machine setups 45 155
Machine-hours 5,500 4,500
The owners have heard of other companies in the industry that are now using an activity-based costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for Open Doors, four activities were identified as generating indirect costs: production scheduling, material handling, machine setup and assembly. Open Doors collected the following data related to the indirect cost activities:
Activity Activity Cost Activity Cost Driver
Production scheduling $95,000 Production runs
Material handling $45,000 Material moves
Machine setup $25,000 Machine setups
Assembly $60,000 Machine-hours
1. Calculate the cost of an interior door and an exterior door under the existing simple costing system(Plant-Wide OH Rate)(1pt)
2. Calculate the cost of an interior door and an exterior door under an activity-based costing system (3pts)
solve it in Microsoft word
Answer:
1. Cost of an Interior door and exterior door (Plant-Wide OH Rate)
Plant-wide overhead rate = Total Overhead cost / Total no. of Machine hours
Total Overhead cost = $95,000 + $45,000 + $25,000 + $60,000 = $225,000
Total no. of Machine hours = 5,500 hours + 4,500 hours = 10,000 hours
Plant-wide overhead rate = Total Overhead cost / Total no. of Machine hours
= $225,000 / 10,000 hours
= $22.5 per Machine Hour
Total overheads allocated to Interior door = $22.5 per Machine Hour * 5,500 machine hours = $123,750
Total overheads allocated to Exterior door = $22.5 per Machine Hour * 4,500 machine hours = $101,250
Overheads allocated to Interior door (Per unit) = Total overheads allocated / No. of units produced
= $123,750 / 3,200 units
= $38.67
Overheads allocated to Exterior door (Per unit) = Total overheads allocated / No. of units produced
= $101,250 / 1,800 units
= $56.25
2. Cost of an Interior door and exterior door (Activity-based costing)
Unit Product Cost (ABC) | Products | |
Interior Door | Exterior Door | |
Direct Materials | $30 | $45 |
Direct Labor | $24 | $36 |
Overhead allocated based on ABC Method | $25.79 | $79.15 |
Total Cost (Per unit) | $79.79 | $160.15 |