Question
In: Accounting
MNO uses activity based costing where overhead from three different cost centers are allocated to products...
MNO uses activity based costing where overhead from three different cost centers are allocated to products based upon the following:
Activity Driver - Overhead Costs - Product A - Product B
Setup Production Runs - $100,000 - 80 productions runs - 20 production runs
Inspection Inspection Hours - $300,000 - 200 hours - 100 hours
Machining Machine Hours - $800,000 - 5,000 hours - 3,000 hours
Raw materials are directly followed to each product and the amount of raw materials used for Product A was $300,000 and for Product B was $200,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $100,000 and for product B was $50,000. There were 12,000 units of product A manufactured and 10,000 units of product B manufactured.
Calculate the total unit cost of making product A and product B using ABC. Show computations.
If MNO uses one plant wide rate to allocate all the overhead based upon direct labor direct labor hours and product A used 20,000 direct labor hours and product B used 10,000 direct labor hours calculate the total unit cost of product A and product B.
Solutions
Expert Solution
a) Calculation of Unit Cost under ABC Costing System:
Working Note 1: Calculation of cost per cost driver
| Particulars | Cost Driver | Total Cost | No of Cost Driver | Cost per Cost Driver | Cost allocated to Product A | Cost Allocated to Product B |
| Setup Cost | Production Run | 100000 | 100 | 1000 | 80000 | 20000 |
| Inspection Cost | Inspection Hours | 300000 | 300 | 1000 | 200000 | 100000 |
| Machining Cost | Machining Hours | 800000 | 8000 | 100 | 500000 | 300000 |
| Total | 780000 | 420000 |
Calculation of Unit Cost of each Product
| Particulars | Product A | Product B |
| Direct Material | 300000 | 200000 |
| Direct Labour | 100000 | 50000 |
| Overhead | 780000 | 420000 |
| Total Cost | 1180000 | 670000 |
| No. of Units | 12000 | 10000 |
| Unit Cost | 98.33 | 67 |
b) Calculation of Unit Cost under One Plant Wide Rate:
Total Overheads= $1200000
Total Labour Hours= 30000
Overhead per Labour Hour= $40
| Particulars | Product A | Product B |
| Material | 300000 | 200000 |
| Labour | 100000 | 50000 |
| Overhead | $40*20000= $800000 | $40*10000= $400000 |
| Total Cost | 1200000 | 650000 |
| No of Units | 12000 | 10000 |
| Unit Cost | 100 | 65 |
ekkarill92 answered 2 years agoRelated Solutions
MNO uses activity based costing where overhead from three different cost centers are allocated to products...
MNO uses activity based costing where overhead from three
different cost centers are allocated to products based upon the
following:
Activity Driver Overhead
Costs
Product
A
Product B
Setup
Production Runs $100,000 80 productions runs 20 production runs
Inspection
Inspection
Hours $300,000 200
hours
100 hours
Machining
Machine Hours $800,000 5,000
hours
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$
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