Question

Activity-Based Costing and Conventional Costs Compared
Chef Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month.

	Gas Cooker	Charcoal Smoker
Units	1,000	7,000
Number of batches	40	10
Number of batch moves	80	20
Direct materials	$50,000	$100,000
Direct labor	$20,000	$28,000

Manufacturing overhead follows:

Activity	Cost	Cost Driver
Materials acquisition and inspection	$360,000	Amount of direct materials cost
Materials movement	16,600	Number of batch moves
Scheduling	30,000	Number of batches
	$406,600

Rounding instructions: Do not round until your final answers. Round total cost answers to the nearest dollar and per unit answers to the nearest cent.

(a) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars.

HINT: Use 8.4708 for overhead rate calculations.

Total cost	$Answer
Gas Cooker	$Answer	per unit
Charcoal Smoker	$Answer	per unit

(b) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming manufacturing overhead is assigned using activity-based costing.

Total cost	$Answer
Gas Cooker	$Answer	per unit
Charcoal Smoker	$Answer	per unit

Answer 1

Solution:
a.	Total cost	604,598
	Gas Cooker	239.42	per unit
	Charcoal Smoker	52.17	per unit
Working Notes:
		Gas Cooker	Charcoal Smoker	Total cost
I	Direct materials	$50,000	$100,000	$150,000
II	Direct labor	$20,000	$28,000	$48,000
III	manufacturing overhead	$169,416.00	$237,182.40	$406,598.40
		[8.4708 x $20,000]	[8.4708 x $28,000]
IV=I+II+III	Total cost	$239,416.00	$365,182.40	$604,598
	÷
V	Units	1000	7000
VI=IV/V	per-unit costs of manufacturing	$                     239.42	$                         52.17
		[239,416/1000]	[365,182.40/7000]
b.
	Total cost	604,600
	Gas Cooker	227.28	per unit
	Charcoal Smoker	53.90	per unit
Working Notes:
		Total cost	Gas Cooker	Total cost
I	Direct materials	$50,000	$100,000	$150,000
II	Direct labor	$20,000	$28,000	$48,000
III	manufacturing overhead
IV	Materials acquisition and inspection	$120,000	$240,000	$360,000
		[$50,000 x 2.40]	[$100,000 x 2.40]
V	Materials movement	$13,280	$3,320	$16,600
		[80 x 166 ]	[20 x 166 ]
VI	Scheduling	$24,000	$6,000	$30,000
		[40 x 600 ]	[10 x 600 ]
VII=I+II+III+IV+V+VI	Total cost	$227,280	$377,320	$604,600
	÷
VIII	Units	1000	7000
IX=VII/VIII	per-unit costs of manufacturing	$                     227.28	$                         53.90
		[227,280/1000]	[377,320/7000]
Notes:	Computation of cost pool
		A	B	C=A/B
Activity	Cost Driver	Cost	total base	Activity rate
Materials acquisition and inspection	Amount of direct materials cost	$360,000	150,000	2.40
			[50,000+100,000]
Materials movement	Number of batch moves	16,600	100	166
			[80+20]
Scheduling	Number of batches	30,000	50	600
			[40+10]
	Total	$406,600
Please feel free to ask if anything about above solution in comment section of the question.