Question

R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. R4F has provided their costing department the following information from this year’s budget relating to the production of these two products:

	ABC		XYZ
Units to be produced	40,000		60,000
Machine-hours expected	1,000		2,000
Direct labor-hours expected	2,000		3,000
Materials handling (number of moves)	600		700
Machine setups (number of setups)	200		150

The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:

Direct Labor Wages	$500,000
Materials Handling	40,000
Labor-related overhead	420,000
Machine setups	70,000

*Show your work for each:

A.- What is the rate that will be used to apply Materials handling overhead costs?

B- What is the rate that will be used to apply Labor-related overhead costs?

C- What is the rate that will be used to apply Machine Setup overhead costs?

D- What is the total expected overhead per unit allocated to product XYZ?

E- What is the expected overhead per unit allocated of product ABC?

Answer 1

a. Rate of Material Handling Overhead Cost= Cost of Material Handling/ No. of Moves

=40000/(600+700)=$30.77 per Moves

b. Rate of Labour related Overhead Cost= Cost of Labour related Overhead / No. of DLH Expected

=420000/(2000+3000)=$84 per DLH

c. Rate of Machine Setup Overhead Cost= Cost of machien setup Overhead / No. of setups

=70000/(200+150)=$200 per setup

Part-d : Expected Oveerhead Per Unit allocated to Prodcut XYZ- R4 Friends Co.
	Activity Rate	No. of Activity	Allocated Overhead
Material Handling	$30.77	700	$21,539.00
Labour Related Overhead	$84.00	3000	$252,000.00
Machien Setup	$200.00	150	$30,000.00
Total Overhead Allocated			$303,539.00
No. of Unit			60000
Overhead Cost per Unit			$5.06

Part-e : Expected Oveerhead Per Unit allocated to Prodcut ABC- R4 Friends Co.
	Activity Rate	No. of Activity	Allocated Overhead
Material Handling	$30.77	600	$18,462.00
Labour Related Overhead	$84.00	2000	$168,000.00
Machien Setup	$200.00	200	$40,000.00
Total Overhead Allocated			$226,462.00
No. of Unit			40000
Overhead Cost per Unit			$5.66