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 3,000 Number of batches 50 10 Number of batch moves 80 20 Direct materials $50,000 $100,000 Direct labor $20,000 $21,000 Manufacturing overhead follows: Activity Cost Cost Driver Materials acquisition and inspection $315,000 Amount of direct materials cost Materials movement 16,300 Number of batch moves Scheduling 36,000 Number of batches $367,300 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 8.9585 for overhead rate calculations. Total cost $Answer 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 $Answer Gas Cooker $Answer per unit Charcoal Smoker $Answer per unit

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Answer 1

a.

	Gas Cooker	Charcoal Smoker
Direct materials	50,000.00	100,000.00
Direct labor	20,000.00	21,000.00
Manufacturing overhead	179,170.73	188,129.27
Total costs	249,171	309,129
(rounded off to nearset dollar)
No. of units	1,000.00	3,000.00
Cost per unit	249.2	103.0
(rounded off to nearset cent)

Calculations:

Manufacturing overhead for Gas Cooker = 8.9585*20,000 = 179,170.73

Manufacturing overhead for Charcoal smoker = 8.9585*21,000 = 188,129.27

Costs per unit = total costs/no. of units. For gas cooker = 249171/1000 = 249.2

(b) Allocation of costs based on activities:

Activity	Cost	Cost driver (ratio of allocation)	Gas Cooker	Charcoal Smoker
Materials acquisition and inspection	315,000.00	Direct materials cost (5:10)	105,000.00	210,000.00
Materials movement	16,300.00	No. of batch moves (8:2)	13,040.00	3,260.00
Scheduling	36,000.00	No. of batches (5:1)	30,000.00	6,000.00
		Total	148,040.00	219,260.00

Thus the answer is:

	Gas Cooker	Charcoal Smoker
Direct materials	50,000.00	100,000.00
Direct labor	20,000.00	21,000.00
Manufacturing overhead	148,040.00	219,260.00
Total costs	218,040.00	340,260.00
No. of units	1,000.00	3,000.00
Cost per unit	218.0	113.4
(rounded off to nearset cent)