Question

Question text

Activity-Based Costing
Slack Corporation has the following predicted indirect costs and cost drivers for 2016 for the given activity cost pools:

	Fabrication Department	Finishing Department	Cost Driver
Maintenance	$80,000	$70,000	Machine hours
Materials handling	30,000	15,000	Material moves
Machine setups	70,000	5,000	Machine setups
Inspections	-	25,000	Inspection hours
	$180,000	$115,000

The following activity predictions were also made for the year:

	Fabrication Department	Finishing Department
Machine hours	10,000	5,000
Material moves	3,000	1,500
Machine setups	700	50
Inspection hours	-	1,000

It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president, Charles Slack, is trying to evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company-wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models:

	ZX300	SL500
Direct materials cost	$18,000	$24,000
Direct labor cost	$5,000	$4,000
Machine hours (Fabrication)	500	700
Machine hours (Finishing)	200	100
Materials moves	30	50
Machine setups	5	9
Inspection hours	30	60

a. Determine the cost of one unit each of ZX300 and SL500, assuming a company-wide overhead rate is used based on total machine hours.

Round rate to two decimal places.
Overhead rate based on total machine hours Answer per machine hour

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.

Product Costs per Unit
	ZX300	SL500
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Manufacturing overhead:	Answer	Answer
Total cost per batch	$Answer	$Answer
Number of units per batch	Answer	Answer
Cost per unit	$Answer	$Answer

b. Determine the cost of one unit of ZX300 and SL500, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.

Round rate to two decimal places, if applicable.
Overhead rate based on machine hours for Fabrication Dept. $Answer per machine hour
Overhead rate based on machine hours for Finishing Dept. $Answer per machine hour

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit
Product Costs per Unit
	ZX300	SL500
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Fabrication Dept.	Answer	Answer
Finishing Dept.	Answer	Answer
Total cost per batch	$Answer	$Answer
Number of units per batch	Answer	Answer
Cost per unit	$Answer	$Answer

c. Determine the cost of one unit of ZX300 and SL500, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.
Round rate to two decimal places, if applicable.

Activity-based overhead rates:
Maintenance	$Answer   per machine hour
Materials handling	$Answer per materials move
Machine setup	$Answer per machine setup
Inspection activities	$Answer per inspection hour

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit
	ZX300	SL500
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Maintenance activity	Answer	Answer
Materials handling activity	Answer	Answer
Machine setups activity	Answer	Answer
Inspections activity	Answer	Answer
Total cost per batch	$Answer	$Answer
Number of units per batch	Answer	Answer
Cost per unit	$Answer	$Answer

Answer 1

a)
Product Costs per Unit
	ZX300	SL500
Direct materials	18000	24000
Direct labor	5000	5000
Manufacturing overhead: (WN1)	137667	157333
Total cost per batch	160667	186333
Number of units per batch	100	100
Cost per unit	1606.67	1863.33
WN1 - Manufacturing overhead:
Total manufacturing overhead costs (180000+115000) = 295000
Total machine hours of product ZX300 (500+200) = 700
Total machine hours of product SL500 (700+100) = 800
Total manufacturing overhead costs of ZX300 (295000*(700/1500)) = 137667
Total manufacturing overhead costs of SL500 (295000*(700/1500)) = 157333
b)
Product Costs per Unit
	ZX300	SL500
Direct materials	18000	24000
Direct labor	5000	4000
Manufacturing overhead:
Fabrication Dept.	75000	105000
	(180000*(500/1200))	(180000*(700/1200))
Finishing Dept.	76,667	38,333
	(115000*(200/300))	(115000*(100/300))
Total cost per batch	1,74,667	1,71,333
Number of units per batch	100	100
Cost per unit	1,747	1,713
c)
Activity-based overhead rates:
	Fabrication Dept.	Finishing Dept.
Maintenance	8	14
	(80000/10000)	(70000/5000)
Materials handling	10	10
	(30000/3000)	(15000/1500)
Machine setup	100	100
	(70000/700)	(5000/50)
Inspection activities		25
		(25000/1000)
Product Costs per Unit
	ZX300	SL500
Direct materials	18000	24000
Direct labor	5000	4000
Manufacturing overhead:
Maintenance activity	6800	7000
	(8*500)+(14*200)	(8*700)+(14*100)
Materials handling activity	600	500
	(10*30)+(10*30)	(10*50)+(10*50)
Machine setups activity	1000	1800
	(100*5)+(100*5)	(100*9)+(100*9)
Inspections activity	750	1500
	(25*30)	(25*60)
Total cost per batch	32150	38800
Number of units per batch	100	100
Cost per unit	321.5	388