Question

Use of the weaving/sewing machines is believed to drive MOH costs. At the beginning of the year, the total estimated MOH cost for production of the wristbands is $68,200, and the estimated machine hours were 5,000 for Basic wristbands and 1,200 for Premium wristbands. At the end of the year you can see that 28,000 Basic wristband units and 15,000 Premium wristband units were produced. The Basic wristbands used 4,200 machine hours and Premium wristbands used 1,000 machine hours this year. You agree that the weaving machines seem to drive MOH costs. However, you believe that the weaving machines drive overhead costs through two separate activities: setup and maintenance. Thus, you have compiled the following activity-based data for the Basic and Premium wristbands.

You agree that the weaving machines seem to drive MOH costs. However, you believe that the weaving machines drive overhead costs through two separate activities: setup and maintenance. Thus, you have compiled the following activity-based data for the Basic and Premium wristbands.

Activity Based Costing Info.
			Estimated activity usage by product:
Activity	Est'd Cost	Allocation Base	Basic Wristbands		Premium Wristbands
Setup	$28,000	# of setups	135	setups	100	setups
Machine       maintenance	$40,200	# of machine hours	5,000	MHrs	1,200	MHrs

During the year, it was noted that Basic wristbands used 4,200 machine hours and 94 setups while Premium wristbands used 1,000 machine hours and 112 setups this year.

Activity Rate = Total Activity Cost ÷ Total Cost Driver

1. What is the activity rate for the Setup activity? (Show work; round to the nearest cent.)         

2. What is the activity rate for the Machine maintenance activity? (Show your work, and round to the nearest cent.)             

  

3. How much total overhead was applied per Basic unit under the ABC system?                  (This will require multiple calculations! Show your work, and round to the nearest cent.)             

$_________ overhead per Basic unit.    

4. How much total overhead was applied per Premium unit under the ABC system?       (This will require multiple calculations! Show your work, and round to the nearest cent.)

$___________ overhead per Premium unit.       
             

Answer 1

Ques a
total setup costs	28000
estimated no. of setups	235
(135+100)
cost per setup	$           119	per setup
Ques b
total maintenance costs	40200
estimated no. of setups	6200
(5000+1200)
cost per machine hours	$                6	per machine hour
Ques c
For basic we applied
setups	94	setups
rate	$           119
setup cost per unit	$     11,200
Machine maintenance	4200	Mhrs
rate	$                6
Machine maintenance costs	$     27,232
total overheads applied	$     38,432
(11200+38432)
No. of units	28,000
Manufacturing overhead per unit	$          1.37
Ques d
For premium we applied
setups	112	setups
rate	$           119
setup cost per unit	$     13,345
Machine maintenance	1000	Mhrs
rate	$                6
Machine maintenance costs	$        6,484
total overheads applied	$     19,829
(13345+6484)
No. of units	15,000
Manufacturing overhead per unit	$          1.32