Estimated Overhead Costs Expected Activity Product A Product B Machine Setups

Estimated overhead costs expected activity product a

This preview shows page 10 - 14 out of 52 pages.

EstimatedOverheadCostsExpected ActivityProduct A       Product BMachine Setups $     5,25060150Purchase Orders      74,1006201,280General Factory      89,88084012,000 $ 169,230Required: 1. Compute the company’s predetermined overhead rate and determine the costs for a unit of  Product A and a unit of Product B. 2. Using the activity-based costing approach, determine the overhead cost per unit for each product.  Determine the costs for a unit of Product A and a unit of Product B.
Image of page 10
Solution: 1. Predetermined Overhead Rate: Step #1 – Calculate the Predetermined Overhead Rate: Predetermined OH Rate = Total      Estimated      Overhead     Total  Estimated  Activity =   $ 169,230   10,000 DLH = $  16.92/DLH Step # 2 – Calculate unit product costs for Products A & B Product Cost Product A Product B Direct Material $    50.00 $ 100.00 Direct Labor: 2 DLH   @   $ 20/DLH 4 DLH   @   $ 20/DLH      40.00      80.00 Overhead: 2 DLH   @   $ 16.92/DLH 4 DLH   @   $ 16.92/DLH      33.84      67.68 Total Unit Cost $ 123.84 $ 247.68   2. ABCs: Step 1 – Calculate the Department Activity Rates: Activity Cost Pool A Estimated Overhead Costs Expected Activity Product A       Product B B Total Expected Activity ÷  B Activity Rate Machine Setups  $     5,250 60 150 210 $25/setup Purchase Orders       74,100 620 1,280 1,900 $39/order General Factory       89,880 840 12,000 12,840 $7/DLH  $ 169,230
Image of page 11
Step 2 – Use department activity rates to determine amount of overhead to be applied to Product A  Activity Cost Pool Product A Activity Activity Rate Overhead Applied to Product A Machine Setups  60 $25/setup $   1,500 Purchase Orders 620 $39/order    24,180 General Factory 840 $7/DLH      5,880 $ 31,560 Step 3 – Use department activity rates to determine amount of overhead to be applied to Product B  Activity Cost Pool Product B Activity Activity Rate Overhead Applied to Product B Machine Setups      150 $25/setup $     3,750 Purchase Orders   1,280 $39/order      49,920 General Factory 12,000 $7/DLH      84,000 $ 137,670 Step 4 – Determine the overhead to be applied to each unit of product  Overhead Applied to Individual Product     = OH per unit   Expected No. of Units to be Produced Product A:  $ 31,560  ÷  600 units   $ 52.60 per unit Product B: $ 137,670  ÷  6,000 units = $ 22.945 per unit Step 5 – Determine Unit Product Costs for Product A & B Product Cost Product A Product B Direct Material $    50.00 $ 100.00 Direct Labor: 2 DLH   @   $ 20/DLH 4 DLH   @   $ 20/DLH      40.00      80.00 Overhead (see above)      52.60       22.95   Total Unit Cost $ 142.60 $  202.95
Image of page 12
Note: ABCs gives the company a better grasp on it product costs by spreading factory overhead among its products in a more efficient manner.
Image of page 13
Image of page 14

You've reached the end of your free preview.

Want to read all 52 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes