Question

In: Accounting

Green Furniture (GF) manufactures a variety of furniture for household use and just two items for...

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 $ 2.00 per part 1,200 parts 800 parts
Machining Machine-hours $ 12.00 per machine-hour 120 machine-hours 180 machine-hours
Assembly Units produced $ 1.60 per unit 600 units 800 units
Quality control Units tested $ 3.00 per unit 60 units 700 units
Direct materials $ 3,000 $ 1,600
Direct labour $ 7,200 $ 7,200

Each product consumed 360 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 costs
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 costs
Cost per unit

Solutions

Expert Solution

1) Calculation of Total Manufacturing Cost :-

Particulars Dusters Cabinets
Direct Materials (A) $3000 $1600
Direct Labor (B) $7200 $7200
Overheads
Parts Receipts ($2*1200),($2*800) $2400 $1600
Machining ($12*120), ($12*180) $1440 $2160
Assembly ($1.60*600), ($1.60*800) $960 $1280
Quality Control ($3*60), ($3*700) $180 $2100
Total Overhead (C) $4980 $7140
Total Manufacturing Cost (A+B+C) $15180 $15940

Calculation of Cost Per Unit :-

Particulars Dusters Cabinets
Total Manufacturing Cost (A) $15180 $15940
No. of Units Produed (B) 600 800
Cost Per unit (A/B) $25.30 $19.925

2) Total Manufacturing Cost :-

Particulars Mops Dusters
Direct Materials $3000 $1600
Direct Labor $7200 $7200
Overheads (($12120*360)/720) $6060 $6060
Total Manufacturing Cost $16260 $14860

Total Overhead Exp. = $4980+$7140 = $12120

Total Direct Labor Hour = 360 * 2 = 720 h

Calculation of Cost Per Unit :-

Particulars Mops Dusters
Total Manufacturing Cost (A) $16260 $14860
No. of Units Produed (B) 600 800
Cost Per unit (A/B) $27.10 $18.575

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