A2_Solution - MGT223H5S 2010 Assignment #2 Problem One...

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1 MGT223H5S 2010 Assignment #2 Problem One Activity-Based Costing Required: 1. Calculate the cost per unit of each product using traditional costing method, assuming use of direct-labor hours to apply overhead to production. POHR = estimated overhead/estimated direct-labor hours = 350,000/(1*20,000+1.5*10,000) = $10 per dlh Gourmet Espresso Direct material $ 5 $ 10 Direct labor 1*12=12 1.5*12=18 Applied MOH 1*10=10 1.5*10=15 Total cost $27 $43 2. Assuming use of activity-based costing, compute the unit manufacturing costs of the Gourmet and Espresso coffee. (Please round to nearest dollar.) (a) Identity cost pools based on cost drivers or activities Costs Activity cost pools Cost drivers General categories Setups Setups(1) # of setups Batch level Machine depreciation Machine processing (2) Machine hours Unit level Electricity (machinery) Machine processing (2) Machine hours Unit level Product inspection Product inspection (3) # of inspections Batch level Office staff salary (half) Product inspection (3) # of inspections Batch level Maintenance Maintenance (4) # of production runs Batch level Office staff salary (half) Customer relations (5) # of customers Customer level Factory insurance is only for Espresso, so this product-level cost is directly allocated to Espresso. Gourmet does not cause any of the insurance. Customer level costs are not assigned to products.
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2 (b) Assign costs to cost pools and compute activity rates for each cost pool. Activities Cost Activity Cost Driver Application Rate Setups $68,000 ÷ 500 setups (SU) = $136 per SU Machine processing (100,000 + 60,000) 160,000 ÷ 40,000 machine hrs. (MH) = $4 per MH Product inspection (40,000 + 50%*10,000) 45,000 ÷ 1,000 inspections (IS) = $45 per IS Maintenance 80,000 ÷ 147 runs (20,000/250+10,000/150) = $544 per run (c) Assign costs to product by multiplying the rate times the volume of cost driver units consumed by the product. Activity
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A2_Solution - MGT223H5S 2010 Assignment #2 Problem One...

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