# Answer a manufacturing overhead cost allocation rate

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Answer:a.Manufacturing overhead cost-allocation rate = €0.40 per mh= €20,000/50,000 mh2 pointsb.€320 estimated manufacturing overhead costs = 800 mh × €0.40 per mhpointc.Direct materials€500Direct manufacturing labor€100Manufacturing overhead costs €320Estimated total manufacturing costs€9201 point
Total 4 points3.4)The manufacturing division of an electronics company uses activity-based costing. The company has identified three activities and the relatedcost drivers for indirect production costs.
10/16ActivityCost DriverActivity 1 – Materials handlingDirect materials costActivity 2 – AssemblyDirect labor costActivity 3 – Power generation Kilowatt hoursTwo types of products are produced. Direct costs and cost-driver activityfor each product for a month are as follows:Product AProduct BDirect materials cost€75,000€50,000Direct labor cost€6,000€1,000Kilowatt hours200,000300,000Indirect production costs for the month are as follows:Activity 1€30,000Activity 221,000Activity 316,000Total€67,000Required:A)Compute the indirect production costs allocated to each productusing the ABC system.B)Compute the indirect production costs allocated to each productusing a traditional costing system. Assume indirect production costsare allocated to each product using the cost driver direct labor costs.C)Compare the results obtained under A) and B). What is the mainelement that explains the difference between them? Which resultsdo you trust more?Answer:3
11/16Activity 3: € 0.032 x 300,000 =€9,600Total€24,6001 point for each cost allocation rate per unit(or the proportional allocation of activity costs to the products)= 3 pointstotal indirect costs of the products1 pointB)Cost allocation rate:€67,000 / €7,000= 9.57 (rounded)Product A:9.57 x €6,000 = €57,420Product B:9.57 x €1,000 = €9,5701 point for the cost allocation rate per unit(or the proportional allocation of activity costs to the products)= 1 pointFor the total indirect costs the products1 pointC)Under activity-based costing, Product B is more costly to produce thanunder the traditional costing method (undercosted). Under activity-basedcosting, Product A is less costly to produce than under the traditionalcosting method (overcosted).1 pintThe reason is that Product B requires a relatively higher percentage ofkilowatthours (60%) and of direct materials costs (40%), than of directlabor costs (14%), than Product A.1 pointThe ABC results are more trustworthy because- kilowatthours is a cost driver that probably better measures theextent to which the products generate indirect costs by usingActivity 3, than direct labor costs;- direct materials costs is a cost driver that probably better measuresthe extent to which the products generate indirect costs by usingActivity 1, than direct labor costs.1 pointTotal: 9 points

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Term
Summer
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Johnson Company