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Unformatted text preview: costs for each cost pool to products, using the overhead rate (cost per driver) Wang 2013 11 Overhead Costs Allocation ExampleABC System Product A 25,000 $40/unit $12/unit 25,000 Units Produced Direct Material Direct Labor Direct Labor Hour Dr ive r un de r the tra dit ion al Estimated Overhead Estimated Direct Labor Hours Product B 5,000 $30/unit $12/unit 5,000 $900,000 30,000 Step #1 Identify Activity Cost Pools Activity Cost Pools Setting up machines Machining Inspecting Total Wang 2013 Estimated Overhead $300,000 $500,000 $100,000 $900,000 12 Overhead Costs Allocation ExampleABC System Step #2 Identify Cost Drivers Activity Cost Pools Cost Drivers Expected Use of Cost Driver Per Activity Setting up machines Machining Inspecting Number of setups Machine hours Number of inspections 1,500 50,000 2,000 Step #3 Calculate Overhead Rates Activity Cost Pools Estimated Overhead Expected Use of Cost Driver per Activity Activity-Based Overhead Rates Setting up machines $300,000 1,500 setups $200/setup Machining $500,000 50,000 machine hours $10/machine hour Inspecting $100,000 2,000 inspections $50/inspection Total $900,000 Wang 2013 13 Overhead Costs Allocation ExampleABC System Step #4 Assign Overhead to Products Activity Cost Pools Cost Drivers Expected Use of Cost Driver per Activity Setting up machines Machining Number of setups Machine hours 1,500 setups 50,000 machine hours Inspecting Number of inspections 2,000 inspections Activity Cost Pools Setting up machines Machining Inspecting Total Units Produced Overhead per Unit Wang 2013 Activity-Based Overhead Rates Product A Expected Use of Cost Cost Drivers Assigned Expected Use of Cost Drivers per Product Product B Product A 500 1,000 30,000 20,000 500 1,500 Product B Expected Use Cost of Cost Drivers Assigned $200/setup 500 $100,000 1,000 $200,000 $10/machine hour $50/inspection 30,000 500 $300,000 $25,000 $425,000 25,000 $17 20,000 1,500 $200,000 $75,000 $475,000 5,000 $95 14 Traditional, Volume-Based ProductCosting System • Aerotech produces three complex printed circuit boards referred to as Mode I, Mode II, and Mode III. • The following information is obtained from company records: Mode I Production: Units Runs Wang 2013 Mode II Mode III 10,000 1 run of 10,000 u nits 20,000 4 runs of 5,000 units 4,000 10 runs of 400 units 15 Traditional, Volume-Based ProductCosting System Direct m...
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This document was uploaded on 03/06/2014.

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