Demo-case-9

# Demo-case-9 - Activity Based Costing chapter Demonstration...

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Activity Based Costing chapter Demonstration Problem 1 ABC Manufacturing, Inc. produces three gadgets (Ace, Best, and Champ) in two departments, Machining and Assembly. Each product requires one hour of direct labor for completion. The following table provides production and cost data for the year. Ace Best Champ Total Number of units 25,000 15,000 5,000 45,000 Machine hours 2,500 1,500 2,000 6,000 Direct materials \$1,000,000 \$450,000 \$275,000 \$1,725,000 Direct labor 375,000 225,000 75,000 675,000 Overhead Machining 900,000 Assembly 450,000 Total overhead 1,350,000 Tot costs \$3,750,000 Required: Use the plantwide allocation method to determine the unit cost for each product. The allocation bases to choose from are Machine hours. Direct labor costs.

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Solution: The overhead allocation rate when machine hours were used as the allocation base was \$225 per machine hour (= \$1,350,000 / 6,000 machine hours). The unit cost report would show the following: Ace Best Champ Units produced 25,000 15,000 5,000 Machine hours per unit 0.1 0.1 0.4 Direct materials \$40.0 \$30.0 \$55.0 Direct labor 15.0 15.0 15.0 Applied overhead (\$225 per machine hour) 22.5 22.5 90.0 Unit cost \$77.5 \$67.5 \$160.0 The overhead allocation rate when direct hour costs were used as the allocation base was 200% (= \$1,350,000 ÷ \$675,000). The unit cost report would show the following: Ace Best Champ Units produced 25,000 15,000 5,000 Direct materials \$40.0 \$30.0 \$55.0 Direct labor 15.0 15.0 15.0 Applied overhead (200% direct labor costs) 30.0 30.0 30.0 Unit cost \$85.0 \$75.0 \$100.0 Please note that the same results can be obtained using the number of units produced as the
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## This note was uploaded on 10/29/2009 for the course ACC 066 taught by Professor Kwak during the Spring '08 term at DeAnza College.

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Demo-case-9 - Activity Based Costing chapter Demonstration...

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