Question

This exercise will deal with the costing of a product using a predetermined overhead rate and Activity Based Costing (ABC). Please note the different results from using the different methods.

The Sample Company wants to compare the results from the use of a predetermined overhead rate versus Activity Based Costing (ABC). The following are the estimated costs:

Estimated Manufacturing Overhead					$ 1,000,000.00
Estimated direct labor hours (DLH)					40000
Predetermined Overhead Rate					$ 25.00	per DLH
				Mono-Relay		Bi-Relay
Time to Make One Unit				0.75		1	Hours
Estimated Units Produced				40000		10000
Estimated Total DLH				30000		10000
Direct Materials				$ 35.00		$   48.00
Direct Labor       $12 per hour				$ 9.00		$   12.00

				Estimated Overhead	Expected Activity
Maintaining Parts Inventory				$     180,000.00	225
Processing Purchase Orders				$   90,000.00	1000
Quality Control				$ 230,000.00	5750
Machine related				$ 500,000.00	10000
				$ 1,000,000.00
				Mono-Relay	Bi-Relay	Total
Maintaining Parts Inventory				75	150	225
Processing Purchase Orders				800	200	1000
Quality Control				2500	3250	5750
Machine related				4000	6000	10000

Compute the direct material, direct labor, overhead and total unit cost using the following:

Predetermined overhead rate

Activity Based Costing (ABC)

Please use the following Excel template:

  

The template is below

Estimated Manufacturing Overhead					$1,000,000.00
Estimated DLH					40000
Predetermined Overhead Rate					$25.00	per DLH
				Mono-Relay		Bi-Relay
Time to Make One Unit				0.75		1	hours
Estimated Units Produced				40000		10000
Estimated Total DLH				30000		10000
Direct Materials				$35.00		$48.00
Direct Labor		$12 per hour		$9.00		$12.00
Manufacturing Overhead
Total Unit Cost
ABC
				Estimated Overhead	Expected Activity	Rate
Maintaining Parts Inventory				$180,000.00	225		per part type
Processing Purchase Orders				$90,000.00	1000		per purchase order
Quality Control				$230,000.00	5750		per test
Machine related				$500,000.00	10000		per machine hour
				$1,000,000.00
				Mono-Relay	Bi-Relay	Total
Maintaining Parts Inventory				75	150	225
Processing Purchase Orders				800	200	1000
Quality Control				2500	3250	5750
Machine related				4000	6000	10000
				Mono-Relay	Bi-Relay
Maintaining Parts Inventory				$-	$-
Processing Purchase Orders				$-	$-
Quality Control				$-	$-
Machine related				$-	$-
Total				$-	$-
Direct Materials				$35.00	$48.00
Direct Labor				$9.00	$12.00
Overhead per unit				$-	$-
Total Unit Cost

Answer 1

		Static Budget Variable OH	7000
		Static Budget Fixed OH	3,000
		Static Budget DLH	1000
		Static Budget Number of Units	4000
		Fixed OH Alloction Basis	DLH
		Estimated OH	1000000
		Estimated DLH	40000
		Predetermined OH rate	25.00	Per DLH
			Mono	BI
		Time Required	0.75	1.00
		Estimated Units	40,000	10,000
		Estimated DLH	30,000	10,000
			Estimated Overhead	Expected Activity	Activity Rate
		Maintaining Parts Inventory	1,80,000	225	800.00
		Processing Purchase Orders	90,000	1000	90.00
		Quality Control	2,30,000	5750	40.00
		Machine related	5,00,000	10000	50.00
		Estimated OH	10,00,000
			Mono	BI	Total
		Maintaining Parts Inventory	75.00	150.00	225
		Processing Purchase Orders	800	200	1,000
		Quality Control	2,500	3,250	5,750
		Machine related	4000	6000	10,000
	A	Predetermined OH Rate:
			Mono	BI
		Direct Material	35.00	48.00
		Direct Labor	9.00	12.00
		OH Allocation(Basis DLH)	18.75	25.00
		(25*0.75/25*1)
		Total Cost	62.75	85.00
	B	Activity Based:
			Mono	BI
		Direct Material	35.00	48.00
		Direct Labor	9.00	12.00
		OH Allocation**	10.80	56.80
		Working Note
		Total Cost	54.80	116.80
		Working Note:
		Allocation of OH	Mono	BI		Mono	BI
		Maintaining Parts Inventory	60000	120000		(Driver* Activity Rate)
		Processing Purchase Orders	72000	18000		(Driver* Activity Rate)
		Quality Control	100000	130000		(Driver* Activity Rate)
		Machine related	200000	300000		(Driver* Activity Rate)
		Total	432000	568000	1000000
		Units	40,000	10,000
		PU	10.80	56.80