Waymire Ltd. currently uses a traditional costing system based on direct labour hours to allocate overhead....

Waymire Ltd. currently uses a traditional costing system based on direct labour hours to allocate overhead. This year, the company has budgeted to produce 1668 units of one of its products. Each unit requires 5 hours of direct labour.

For the coming year, the company is considering changing to an activity based costing system by allocating overhead based on 3 activities. The following are the activities, budgeted total cost and cost drivers per activity for the upcoming year:

Activity	Cost driver	Cost	Cost Base Volume
Processing	machine hours	$864433	20017
Maintenance	direct labour hours	$413018	90878
Inspection	# of inspections	$718840	40205

Waymire Ltd. has estimated the consumption of each of the activities for this product: 1909 machine hours and 3167 inspections.

What is the product’s overhead cost per unit if Waymire decides to implement the activity-based costing system?

Select one:

Expert Solution

Solution

Overhead cost per unit

$ 106.10

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Processing	Number of machine hour	$ 864,433	20017	$ 43.18	Per machine hour
Maintenance	Number of labor hour	$ 413,018	90878	$ 4.54	Per labor hour
Inspection	Number of inspection	$ 718,840	40205	$ 17.88	Per inspection

.

Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Processing	$ 43.18	1,909.00	$ 82,440.06
Maintenance	$ 4.54	8,340.00*	$ 37,903.23
Inspection	$ 17.88	3,167.00	$ 56,623.96
Total Overheads assigned	$ 176967.25
Production	1,668.00
Overhead cost per unit	$ 106.10

*Labor Hours = 1668 x 5

ekkarill92 answered 2 years ago

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