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		1,900	parts		1,300	parts
Machining	Machine-hours	$	13.00	per machine-hour		195	machine-hours		285	machine-hours
Assembly	Units produced	$	2.00	per unit		950	units		1,300	units
Quality control	Units tested	$	2.00	per unit		95	units		1,200	units
Direct materials					$	4,750		$	2,600
Direct labour					$	11,400		$	11,400

Each product consumed 570 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.)

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

3. This part of the question is not part of your Connect assignment.

4. This part of the question is not part of your Connect assignment.

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Answer 1

Overhead allocated under Activity based costing = Activity Rate*Driver consumed
Activity Cost Pool	Activity Base	Activity Rate		Activity Usage				Overhead Assigned
				Desks		Cabinets		Desks	Cabinets
Parts receipts	Number of parts	1	per part	1,900	parts	1,300	parts	1,900	1,300
Machining	Machine-hours	13	per machine-hour	195	machine-hours	285	machine-hours	2,535	3,705
Assembly	Units produced	2	per unit	950	units	1,300	units	1,900	2,600
Quality control	Units tested	2	per unit	95	units	1,200	units	190	2,400
Total Overheads								6,525	10,005
Direct materials								4,750	2,600
Direct labour								11,400	11,400
Total Manufacturing cost								22,675	24,005
Number of units produced								1,900	2,600
Cost per unit								11.93	9.23
Using Direct Labor hours. Equal overhead will be assigned to both as equal direct labor hours used by both
	Desks	Cabinets
Direct materials	4,750	2,600
Direct labour	11,400	11,400
Overheads	8,265	8,265
Total Manufacturing cost	24,415	22,265
Number of units produced	1,900	2,600
Cost per unit	12.85	8.56