Question

Use the following information regarding Musketeer Novelties:

Activity Activity Costs Cost driver

Product design $212,000 1,500 design hours

Product scheduling $180,000 400 Set ups

Machining $600,000 5,000 machine hours

Material Handling $160,000 4,000 Pallet moved

Cost and activity with procuring 2,000 units of a Blueblob Bobblehead are as follows:

Direct Materials: $5,400

Direct Labor: $1,200

Design Hours: 5

Set-Ups: 3

Labor Hours 40

Machine Hours 18

Pallets Moved 10

United produced 400

1.) Develop activity rates for each of the four activities of Musketeer Novelties

2.) What is the product cost for ONE Blueblob Bobblehead using ABC (ACTIVITY BASE COSTING) rates for applying overhead?

3.)What is the product cost of one Blueblob bobblehead if Musketeer Novelties uses a plant-wide overhead rate based on machine hours. (assume 5,000 machine hours plant-wide)

Answer 1

1
Activity	Activity Cost	Cost Driver	ABC Rate
Product design	212000	1500 design hrs	141.33 per Design hr
Product scheduling	180000	400 set ups	450 per setup
Machining	600000	5000 machine hrs	120 per machine hr
Material Handling Costs	160000	4000 pallet moved	40 per pallet moved
Total OH	1152000
2
Particulars				Amt ($)
Direct Material				5400
Direct Labour	40 Labour hrs	30 per Labour hr		1200
Overheads	NO's (A)	ABC Rate (B)	C = A x B
Product design	5 hrs	141.33 per Design hr	707
Product scheduling	3 set ups	450 per setup	1350
Machining	18 Machine hrs	120 per machine hr	2160
Material Handling Costs	10 Pallets moved	40 per pallet moved	400	4617
Total Cost for producing 2000 units				11217
NO. of Units				2000
Product cost for ONE Blueblob Bobblehead (ABC)				5.61
3
If Musketeer Novelties uses a plant-wide overhead rate based on machine hours, then
Overhead Recovery Rate (OHRR) will be
Total Overhead Cost (a)	1152000
Total Plant Machine hrs	5000
OHRR	230.40	per machine hr
Particulars			Amt ($)
Direct Material			5400.00
Direct Labour			1200.00
Overhead Cost	18 Machine hrs	230.40 per Machine hr	4147.20
Total Cost for producing 2000 units			10747.20
NO. of Units			2000
Product cost for ONE Blueblob Bobblehead (ABC)			5.37