Question

Product-Costing Accuracy, Plantwide and Departmental Rates, ABC Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products: Product-Related Data Scientific Business Units produced per year 75,000 750,000 Prime costs $232,000 $2,320,000 Direct labor hours 97,300 973,000 Machine hours 47,300 473,000 Production runs 100 150 Inspection hours 2,000 3,000 Maintenance hours 2,250 9,000 Department Data Department 1 Department 2 Direct labor hours: Scientific calculator 74,200 23,100 Business calculator 126,490 846,510 Total 200,690 869,610 Machine hours: Scientific calculator 22,300 25,000 Business calculator 347,880 125,120 Total 370,180 150,120 Overhead costs: Setup costs $231,500 $231,500 Inspection costs 180,000 180,000 Power 241,000 144,000 Maintenance 208,000 230,750 Total $860,500 $786,250 Required:

1. Compute the overhead cost per unit for each product using a plantwide, unit-based rate using direct labor hours.

Round your calculations and answers to the nearest cent.

Plantwide rate $    per direct labor hour

Overhead cost per unit:

Scientific $    per unit

Business $    per unit

2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required.

Departmental rates:

Department 1 $ per machine hour

Department 2 $ per direct labor hour

Overhead cost per unit:

Scientific $ per unit

Business $ per unit

Repeat using direct labor hours for Department 1 and machine hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required. Departmental rates:

Department 1 $ per direct labor hour

Department 2 $ per machine hour

Overhead cost per unit:

Scientific $    per unit

Business $    per unit

3. Compute the overhead cost per unit for each product using activity-based costing. Round your calculations and answers to the nearest cent.

Overhead Cost

Scientific $ per unit

Business $ per unit

Answer 1

Solution 1:

Total Direct labor hours = 97300+973000 = 1070300

Total overhead = $860,500 + $786,250 = $1,646,750

Pre determined overhead rate = $1,646,750 / 1070300 = $1.53858 per direct labor hour

Overhead applied to scientific calculator = 97300*$1.53858 = $149,704.54

Overhead applied to business calculator = 973000*$1.53858 = $1,497,045.46

Overhead cost per unit scientific calculator = $149,704.54/75000 = $1.996 per unit

Overhead cost per unit business calculator = $1,497,045.46 / 750000 = $1.996 per unit

Solution 2a:

Computation of department wide overhead rate - ABC Escuha Company
Particulars	Department 1	Department 2
Overhead Cost	$860,500.00	$786,250.00
Machine hours for Deptt 1	370180
Labor hours for Deptt 2		869610
Overhead rate (Deptt 1 - Per machine hour, Deptt 2 - Per labor hour)	$2.32454	$0.90414

Allocation of overhead and computation of overhead cost per unit - ABC Escuha Company
Particulars	Scientific	Business
Machine hours for deparment 1	22300	347880
Allocation rate	$2.32454	$2.32454
Allocated overhead deptt 1 (A)	$51,837.35	$808,662.65
Labor hours for Deptt 2	23100	846510
Allocation rate	$0.90414	$0.90414
Allocated overhead deptt 2 (B)	$20,885.66	$765,364.34
Total Allocated overhead (A+B)	$72,723.01	$1,574,026.99
Nos of units	75000	750000
Overhead cost per unit	$0.97	$2.10

Solution 2b:

Computation of department wide overhead rate - ABC Escuha Company
Particulars	Department 1	Department 2
Overhead Cost	$860,500.00	$786,250.00
Labor hours for Deptt 1	200690
Machine hours for Deptt 2		150120
Overhead rate (Deptt 1 - Per machine hour, Deptt 2 - Per labor hour)	$4.28771	$5.23748

Allocation of overhead and computation of overhead cost per unit - ABC Escuha Company
Particulars	Scientific	Business
Labor hours for deparment 1	74200	126490
Allocation rate	$4.28771	$4.28771
Allocated overhead deptt 1 (A)	$318,147.89	$542,352.11
Machine hours for Deptt 2	25000	125120
Allocation rate	$5.23748	$5.23748
Allocated overhead deptt 2 (B)	$130,936.92	$655,313.08
Total Allocated overhead (A+B)	$449,084.81	$1,197,665.19
Nos of units	75000	750000
Overhead cost per unit	$5.99	$1.60

Solution 3:

Determination of activity rate for each activity, allocation of overhead and computation of overhead cost per unit - ABC Escuha Company
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Scientific		Business
					Usage	Allocated Costs	Usage	Allocated Costs
Setup Cost	$463,000.00	Production runs	250	$1,852.00	100	$185,200.00	150	$277,800.00
Inspection cost	$360,000.00	Inspection hours	5000	$72.00	2000	$144,000.00	3000	$216,000.00
Power Cost	$385,000.00	Machine hours	520300	$0.74	47300	$35,000.00	473000	$350,000.00
Maintenance Cost	438750.00	Maintenance hours	11250	$39.00	2250	$87,750.00	9000	$351,000.00
Total	$1,646,750.00					$451,950.00		$1,194,800.00
Nos of units						75000		750000
Overhead cost per unit						$6.03		$1.59