Question

Green Furniture (GF) manufactures a variety of furniture for household use and just two items for office use: desks and cabinets. The production process for desks and cabinets is similar, although machines must be retooled for each product. Both materials and labour costs are directly traceable to individual products; however, overhead is a common cost and allocated using direct labour-hours as the allocation base. GF’s accountant is considering the use of activity-based costing (ABC) and has suggested evaluating the system by applying it to the two office use products (desks and cabinets). The following data are available for a typical quarter.

Activity Cost Pool	Activity Base	Activity Rate			Activity Usage
					Desks			Cabinets
Parts receipts	Number of parts	$	1.00	per part		2,500	parts		1,750	parts
Machining	Machine-hours	$	13.00	per machine-hour		255	machine-hours		375	machine-hours
Assembly	Units produced	$	1.20	per unit		1,250	units		1,750	units
Quality control	Units tested	$	2.00	per unit		125	units		1,650	units
Direct materials					$	6,250		$	3,500
Direct labour					$	15,000		$	15,000

Each product consumed 750 direct labour-hours.

Required:

1. Determine the total manufacturing cost and cost per unit for each of the two product lines for the quarter, using activity-based costing to allocate overhead costs. (Round "Cost per unit" answers to 2 decimal places.)

Green Furniture (GF) manufactures a variety of furniture for household use and just two items for office use: desks and cabinets. The production process for desks and cabinets is similar, although machines must be retooled for each product. Both materials and labour costs are directly traceable to individual products; however, overhead is a common cost and allocated using direct labour-hours as the allocation base. GF’s accountant is considering the use of activity-based costing (ABC) and has suggested evaluating the system by applying it to the two office use products (desks and cabinets). The following data are available for a typical quarter.

Activity Cost Pool	Activity Base	Activity Rate			Activity Usage
					Desks			Cabinets
Parts receipts	Number of parts	$	1.00	per part		2,500	parts		1,750	parts
Machining	Machine-hours	$	13.00	per machine-hour		255	machine-hours		375	machine-hours
Assembly	Units produced	$	1.20	per unit		1,250	units		1,750	units
Quality control	Units tested	$	2.00	per unit		125	units		1,650	units
Direct materials					$	6,250		$	3,500
Direct labour					$	15,000		$	15,000

Each product consumed 750 direct labour-hours.

Required:

1. Determine the total manufacturing cost and cost per unit for each of the two product lines for the quarter, using activity-based costing to allocate overhead costs. (Round "Cost per unit" answers to 2 decimal places.)

	Dusters Cabinets Total manufacturing cost Cost per unit

2. Redo the above using direct labour-hours as the allocation base. (Round "Cost per unit" answers to 2 decimal places.)

	Mops Dusters Total manufacturing cost Cost per unit

Answer 1

Part 1
Allocation of Overhead Cost
		Desks	Cabinet
	ABC Rate	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
Parts receipts	$                      1.00	2500	$                                      2,500	1750	$                                           1,750
Machining	$                    13.00	255	$                                      3,315	375	$                                           4,875
Assembly	$                      1.20	1250	$                                      1,500	1750	$                                           2,100
Quality Control	$                      2.00	125	$                                         250	1650	$                                           3,300
Total Overhead Cost allocated			$                                      7,565		$                                         12,025
Computation of Total Manufacturing cost per per unit
	Desks	Cabinets
Direct Materials	$                    6,250	$                                 3,500
Direct Labor	$                  15,000	$                               15,000
Overhead Costs	$                    7,565	$                               12,025
Total Manufacturing Cost	$                  28,815	$                               30,525
Units Produced	1250	1750
Cost per per unit	$                    23.05	$                                 17.44
Part 2
Total Overhead Cost =$7,565 + $12,025 =$19,590
Total Labor Hours =1,500 hours
Predetermined Overhead Rate =$19,590 / 1,500 hrs =$13.06 per direct labor hour
Computation of Total Manufacturing cost per per unit
	Desks	Cabinets
Direct Materials	$                    6,250	$                                 3,500
Direct Labor	$                  15,000	$                               15,000
Overhead Costs($13.06*No. of Direct labor hours)	$                    9,795	$                                 9,795
Total Manufacturing Cost	$                  31,045	$                               28,295
Units Produced	1250	1750
Cost per per unit	$                    24.84	$                                 16.17