In: Accounting
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 |
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 |