Question

Howard company makes two products A & B. Here is some financial information about those products.

		A	B	Combined total cost of cost drivers
Direct labor		$25,000	$15,000
Direct materials		$40,000	$30,000
Cost drivers
	Set ups	7	3	$10,000
	Inspections	4	6	$5,000
	Test Runs	15	5	$25,000
Units produced		1000	1000
Required:
	1.       Compute the total of product A using ABC costing.
	2.       Compute the total cost per unit of product A using ABC costing.
	3.       Compute the total cost of product B using ABC costing.
	4.       Compute the total cost per unit cost of product B using ABC costing.
	5.       If Howard company stopped using activity based costing and instead computed overhead at the rate of $1 per labor dollar, what would be the total cost and the unit cost of product A?
	6.       If Howard company stopped using activity based costing and instead computed overhead at the rate of $1 per labor dollar, what would be the total cost and the unit cost of product B?

Answer 1

	1) Total of Product A using ABC :
	Particulars			Amount
	Direct labor			25000
	Direct materials			40000
	Overhead :
	Set up (10000/10*7)			7000
	Inspections(5000/10*4)			2000
	Test runs(25000/20*15)			18750
				92750
2)	Per unit of cost of A		92750/1000	92.75
3) Total of Product A using ABC :
	Particulars			Amount
	Direct labor			15000
	Direct materials			30000
	Overhead :
	Set up (10000/10*3)			3000
	Inspections(5000/10*6)			3000
	Test runs(25000/20*5)			6250
				57250
4)	Per unit of cost of A		57250/1000	57.25
5) If howard company stops ABC and compute OH at the rate of $1 per labour dollar
For product A
Particulars			Amount
Direct labor			25000
Direct materials			40000
Overhead :
$1 * 25000 labour dollar			25000
Total cost			90000
Per unit cost			90
6) If howard company stops ABC and compute OH at the rate of $1 per labour dollar
For product B
Direct labor			15000
Direct materials			30000
Overhead :
$1 * 15000.			15000
Total cost			60000
Per unit cost			60