In: Accounting
Kindly solve the question
Bartez Company makes products C and D. Information for overhead costs and for the two products appears below. The company makes 50,000 units of product C each year and 20,000 units of product D.
Activity Driver Total Overhead Cost Prod C Usage Prod D usage
Setups # of setups $200,000 500 setups 1,500 setups
Ordering parts # of parts $300,000 60,000 parts 40,000 parts
Machining MH $600,000 12,000 MH 6,000 MH
Inspections # of Insp $400,000 10,000 Insp 40,000 Insp
Shipping # of shipments $300,000 10,000 Ship 10,000 Ship
Total overhead $1,800,000
* MH – Machine Hours Insp – Inspections Ship - Shipments
Assume that activity based costing is used, with each activity in its own cost pool. What is the rate per setup that should be used to
Activity | Driver | Total Cost | Product C Usage | Product D usage | Total usage of C & D | |
Setup | No. Of setup | $2,00,000 | 500 | 1500 | 2000 | |
Ordering Part | No. Of Part | $3,00,000 | 60000 | 40000 | 100000 | |
Machining | Machine Hours | $6,00,000 | 12000 | 6000 | 18000 | |
Inspection | No. Of inspection | $4,00,000 | 10000 | 40000 | 50000 | |
shipping | No. Of Shipment | $3,00,000 | 10000 | 10000 | 20000 | |
Total | $18,00,000 | |||||
Units made | For C= | 50000 units | for D= | 20000 units | ||
Bifurcation of cost as per activity based cost: | ||||||
Activity | Total Cost | For C | For D | |||
Amount | Working | Amount | Working | |||
Setup | $2,00,000 | $50,000 | $200000X 500 /2000 | $150,000 | $200000X 1500 /2000 | |
Ordering Part | $3,00,000 | $180,000 | $300000 X 60000 / 100000 | $120,000 | $300000 X 40000 / 100000 | |
Machining | $6,00,000 | $4,00,000 | $600000 X 12000/ 18000 | $2,00,000 | $600000 X 6000/ 18000 | |
Inspection | $4,00,000 | $80,000 | $400000 X 10000/ 50000 | $3,20,000 | $400000 X 40000/ 50000 | |
shipping | $3,00,000 | $150,000 | $300000 X 10000/20000 | $150,000 | $300000 X 10000/20000 | |
$18,00,000 | $8,60,000 | $9,40,000 | ||||
The per unit cost of C= | Total cost of C/ no. Of units | |||||
The per unit cost of C= | $8,60,000/ 50000 | |||||
The per unit cost of C= | $17.20 | |||||
The per unit cost of D= | Total cost of D / no. Of units | |||||
The per unit cost of D= | $9,40,000/ 20000 | |||||
The per unit cost of D= | $47.00 | |||||
Rate per setup that should be used is: | ||||||
For C: | Cost of setup for product C / no. Of units | |||||
$50,000/ 50000 | ||||||
$1.00 | ||||||
For D: | Cost of setup for product D / no. Of units | |||||
$1,50,000/ 20000 | ||||||
$7.50 |