Question

Traditional Product Costing versus Activity-Based Costing Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year: Overhead Item Expected Costs Cost Driver Maximum Quantity Setup costs $734,400 Number of setups 7,200 Ordering costs 195,000 Number of orders 65,000 Maintenance 1,380,000 Number of machine hours 80,000 Power 132,000 Number of kilowatt hours 440,000 Total predicted direct labor hours for next year is 39,000. The following data are for two recently completed jobs: Job 201 Job 202 Cost of direct materials $11,500 $13,000 Cost of direct labor $19,600 $63,300 Number of units completed 1,000 850 Number of direct labor hours 220 270 Number of setups 15 19 Number of orders 21 42 Number of machine hours 460 360 Number of kilowatt hours 200 300 a. Determine the unit cost for each job using a traditional plantwide overhead rate based on direct labor hours. Round cost per unit answers to two decimal places when applicable. Job 201 Job 202 Direct materials $Answer $Answer Direct labor Answer Answer Overhead Answer Answer Total cost $Answer $Answer Units produced Answer Answer Cost per unit $Answer $Answer b. Determine the unit cost for each job using ABC. Round cost per unit answers to two decimal places when applicable. Job 201 Job 202 Direct materials $Answer $Answer Direct labor Answer Answer Setup cost Answer Answer Ordering costs Answer Answer Maintenance costs Answer Answer Power Answer Answer Total job costs $Answer $Answer Units produced Answer Answer Cost per unit $Answer $Answer

Answer 1

Answer a

Overhead Item	Expected Cost
Setup Cost	7,34,400
Ordering Cost	1,95,000
Maintenance	13,80,000
Power	1,32,000
Total	24,41,400

Total Predicted Direct Labour Hours Next Year = 39,000

Total Overhead Cost = 2,441,400

Overhead Rate as per Traditional Plantwide Rate = 2441400 / 39000 = 62.60 per Direct Labour hour

	Job 201	Job 202
Direct Labour Hour	220	270
Overhead Cost Assigned	13,772	16,902

Calculating Per Unit Cost of each Job.

	Job 201	Job 202
Direct Material	11,500	13,000
Direct Labour	19,600	63,300
Overhead	13,772	16,902
Total Cost	44,872	93,202
Units Produced	1,000	850
Per Unit Cost	44.87	109.65

Answer b

Overhead Item	Expected Cost	Cost Driver	Maximum Qty	Overhead Rate
Setup Cost	7,34,400	No. of Setup	7,200	102.00
Ordering Cost	1,95,000	No. of Orders	65,000	3.00
Maintenance	13,80,000	No. of Machine Hours	80,000	17.25
Power	1,32,000	No. of KW Hours	4,40,000	0.30
Total	24,41,400

Overhead Item	Rate of Overhead per cost driver	Cost Driver	JOB 201		JOB 202
			Qty. of Cost Driver	Overhead Cost Assigned	Qty. of Cost Driver	Overhead Cost Assigned
Setup Cost	102.00	No. of Setup	15.00	1,530.00	19.00	1,938.00
Ordering Cost	3.00	No. of Orders	21.00	63.00	42.00	126.00
Maintenance	17.25	No. of Machine Hours	460.00	7,935.00	390.00	6,727.50
Power	0.30	No. of KW Hours	200.00	60.00	300.00	90.00
			Total Overhead	9,588.00	Total Overhead	8,881.50
			Units Produced	1,000.00	Units Produced	850.00
			Overhead Cost per unit	9.59	Overhead Cost per unit	10.45

	Job 201	Job 202
Direct Material	11,500.00	13,000.00
Direct Labour	19,600.00	63,300.00
Overhead	9,588.00	8,881.50
Total Cost	40,688.00	85,181.50
Units Produced	1,000.00	850.00
Per Unit Cost	40.69	100.21