Question

Activity-Based Costing and Conventional Costs Compared
Chef Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month.

	Gas Cooker	Charcoal Smoker
Units	1,000	4,000
Number of batches	60	10
Number of batch moves	80	20
Direct materials	$20,000	$100,000
Direct labor	$20,000	$27,000

Manufacturing overhead follows:

Activity	Cost	Cost Driver
Materials acquisition and inspection	$288,000	Amount of direct materials cost
Materials movement	16,900	Number of batch moves
Scheduling	42,000	Number of batches
	$346,900

Rounding instructions: Do not round until your final answers. Round total cost answers to the nearest dollar and per unit answers to the nearest cent.

(a) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars.

HINT: Use 7.3809 for overhead rate calculations.

Total cost_____________
Gas Cooker	$____________Answer	per unit
Charcoal Smoker	$____________Answer	per unit

(b) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming manufacturing overhead is assigned using activity-based costing.

Total cost	$_________
Gas Cooker	$_________	per unit
Charcoal Smoker	$_________	per unit

Answer 1

a) Calculation of total and per unit cost on the basis of direct labour dollars:
Gas cooker= 346900*20000/47000=$147617.02
Per unit cost of gas cooker= 147617.02/1000=$147.62
charcoal smoker= 346900*27000/47000=$199282.98
Per unit cost of charcoal smoker= 199282.98/4000=$49.82
(b)Calculation of activity rate
Activity cost pools	Estimated overhead(a)	Estimated cost driver(b)	activity rates((a)/(b))
Materials acquisition and inspection	2,88,000	120000	2.40
Materials movement	16,900	100 batch moves	169.00
Scheduling	42,000	70 batches	600.00
	Gas cooker			Charcoal Smoker
Activity cost pools	Expected use of cost drivers per product(a)	activity Based overhead rates(b)	cost assigned(a*b)(in$)	Expected use of cost drivers per product(c)	activity Based overhead rates(d)	cost assigned(c*d)(in$)
Materials acquisition and inspection	20000	2.40	48000	100000	2.40	240000
Materials movement	80 batch moves	169.00	13520	20 batch moves	169.00	3380
Scheduling	60 batches	600.00	36000	10 batches	600.00	6000
	Total overhead cost		97520			249380
Units			1000			4000
Total overhead cost per unit (Total overhead cost/ units)			97.52			62.35