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		1,500	parts		1,000	parts
Machining	Machine-hours	$	15.00	per machine-hour		150	machine-hours		230	machine-hours
Assembly	Units produced	$	1.20	per unit		750	units		1,000	units
Quality control	Units tested	$	2.00	per unit		75	units		900	units
Direct materials					$	3,750		$	2,000
Direct labour					$	9,000		$	9,000

Each product consumed 450 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 cost
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 cost
Cost per unit

Answer 1

Part 1
Allocation of Overhead Cost
		Desks	Cabinet
	ABC Rate	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
Parts receipts	$                      1.00	1500	$                                      1,500	1000	$                                           1,000
Machining	$                    15.00	150	$                                      2,250	230	$                                           3,450
Assembly	$                      1.20	750	$                                         900	1000	$                                           1,200
Quality Control	$                      2.00	75	$                                         150	900	$                                           1,800
Total Overhead Cost allocated			$                                      4,800		$                                           7,450
Computation of Total Manufacturing cost per per unit
	Desks	Cabinets
Direct Materials	$                    3,750	$                                 2,000
Direct Labor	$                    9,000	$                                 9,000
Overhead Costs	$                    4,800	$                                 7,450
Total Manufacturing Cost	$                  17,550	$                               18,450
Units Produced	750	1000
Cost per per unit	$                    23.40	$                                 18.45
Part 2
Total Overhead Cost =$4,800 + $7,450 =$12,250
Total Labor Hours =900 hours
Predetermined Overhead Rate =$12,250 / 900 hrs =$13.61111111 per hour
Computation of Total Manufacturing cost per per unit
	Desks	Cabinets
Direct Materials	$                    3,750	$                                 2,000
Direct Labor	$                    9,000	$                                 9,000
Overhead Costs($13.61111111*No. of Direct labor hours)	$                    6,125	$                                 6,125
Total Manufacturing Cost	$                  18,875	$                               17,125
Units Produced	750	1000
Cost per per unit	$                    25.17	$                                 17.12