Question

A manufacturing company produces three products: A, B, and C. The following data is available for the year:

 

Product A: 10,000 units produced, direct materials cost per unit $5, direct labor cost per unit $10, manufacturing overhead cost per unit $8.

Product B: 5,000 units produced, direct materials cost per unit $8, direct labor cost per unit $12, manufacturing overhead cost per unit $10.

Product C: 3,000 units produced, direct materials cost per unit $12, direct labor cost per unit $15, manufacturing overhead cost per unit $12.

 

The company had total manufacturing overhead costs of $80,000 for the year. Using activity-based costing (ABC), calculate the total cost of producing each product, including both direct and indirect costs.

Answer 1

To calculate the total cost of producing each product using activity-based costing, we first need to identify the cost drivers for the manufacturing overhead costs. Let's assume that the company has identified three activities that drive manufacturing overhead costs: machine setups, product inspections, and facility maintenance. The following data is available for these activities:

 

Machine setups: 200 setups performed, total cost of $30,000

Product inspections: 500 inspections performed, total cost of $20,000

Facility maintenance: 1,000 hours of maintenance performed, total cost of $30,000

Based on this information, we can calculate the overhead cost per unit for each product as follows:

 

Product A:

Direct materials cost per unit = $5

Direct labor cost per unit = $10

Manufacturing overhead cost per unit = (200/10,000) x $30,000 + (500/10,000) x $20,000 + (1,000/10,000) x $30,000 = $6 + $10 + $30 = $46

Total cost per unit = $5 + $10 + $46 = $61

 

Product B:

Direct materials cost per unit = $8

Direct labor cost per unit = $12

Manufacturing overhead cost per unit = (100/5,000) x $30,000 + (250/5,000) x $20,000 + (500/5,000) x $30,000 = $6 + $10 + $30 = $46

Total cost per unit = $8 + $12 + $46 = $66

 

Product C:

Direct materials cost per unit = $12

Direct labor cost per unit = $15

Manufacturing overhead cost per unit = (60/3,000) x $30,000 + (150/3,000) x $20,000 + (300/3,000) x $30,000 = $6 + $10 + $30 = $46

Total cost per unit = $12 + $15 + $46 = $73

 

Therefore, the total cost of producing each unit of Product A, B, and C, including both direct and indirect costs, is $61, $66, and $73, respectively, using activity-based costing.

The total cost of producing each unit of Product A, B, and C, including both direct and indirect costs, is $61, $66, and $73, respectively, using activity-based costing.