Thornton Company has determined its activity cost pools and cost drivers to be the following:
Cost pools Setup $ 45,000 Material handling 9,600 Machine operation 180,000 Packing 54,000 Total indirect manufacturing costs $ 288,600 Cost drivers Setups 500 Material moves 600 Machine hours 18,000 Packing orders 1,200
One product made by Thornton, metal casements, used the following activities during the period to produce 500 units:
Setups 40 Material moves 100 Machine hours 2,100 Packing orders 180
(a) Calculate the cost per unit of activity for each activity cost pool for Thornton company.
Setup $Answer Material handling $Answer Machine operation $Answer Packing $Answer
(b) Calculate the manufacturing overhead cost per metal casement manufactured during the period. Round your answer to the nearest cent.
$Answer
Thornton Company has determined its activity cost pools and cost drivers to be the following:
| Cost pools | |
| Setup | $ 45,000 |
| Material handling | 9,600 |
| Machine operation | 180,000 |
| Packing | 54,000 |
| Total indirect manufacturing costs | $ 288,600 |
| Cost drivers | |
| Setups | 500 |
| Material moves | 600 |
| Machine hours | 18,000 |
| Packing orders | 1,200 |
One product made by Thornton, metal casements, used the following activities during the period to produce 500 units:
| Setups | 40 |
| Material moves | 100 |
| Machine hours | 2,100 |
| Packing orders | 180 |
(a) Calculate the cost per unit of activity for each activity cost pool for Thornton company.
| Setup | $Answer |
| Material handling | $Answer |
| Machine operation | $Answer |
| Packing | $Answer |
(b) Calculate the manufacturing overhead cost per metal casement manufactured during the period. Round your answer to the nearest cent.
$Answer
Related questions
Two-Stage ABC for Manufacturing
Detroit Foundry, a large manufacturer of heavy equipmentcomponents, has determined the following activity cost pools andcost driver levels for the year:
| Activity Cost Pool | Activity Cost | Activity Cost Driver | |
|---|---|---|---|
| Machine setup | $672,000 | 12,000 setup hours | |
| Material handling | 192,000 | 2,000 materialmoves | |
| Machine operation | 500,000 | 10,000 machine hours | |
The following data are for the production of single batches oftwo products, C23 Cams and U2 Shafts during the month ofAugust:
| C23 Cams | U2 Shafts | |
|---|---|---|
| Units produced | 500 | 300 |
| Machine hours | 4 | 5 |
| Direct labor hours | 200 | 400 |
| Direct labor cost | $11,000 | $16,000 |
| Direct materials cost | $36,000 | $26,000 |
| Tons of materials | 13 | 8 |
| Setup hours | 3 | 7 |
Determine the unit costs of C23 Cams and U2 Shafts usingABC.
Round cost per gallon to two decimal places.
| Product Costs | ||
|---|---|---|
| C23 Cams | U2 Shafts | |
| Direct materials | $Answer | $Answer |
| Direct labor | Answer | Answer |
| Manufacturing overhead: | ||
| Machine setups | Answer | Answer |
| Material handling | Answer | Answer |
| Machine operation | Answer | Answer |
| Total job costs | $Answer | $Answer |
| Units produced | Answer | Answer |
| Cost per unit produced | $Answer | $Answer |
Activity-Based Product Costing
Alabama Manufacturing Company is a diversified manufacturer that manufactures three products (M5, Z4, and I8) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:
| Activity | Activity Cost Pool | |||
| Production | $356,400 | |||
| Setup | 132,300 | |||
| Material handling | 65,700 | |||
| Inspection | 151,700 | |||
| Product Engineering | 66,000 | |||
| Total | $772,100 | |||
The activity bases identified for each activity are as follows:
| Activity | Activity Base |
| Production | Machine hours |
| Setup | Number of setups |
| Material handling | Number of moves |
| Inspection | Number of customer orders |
| Product Engineering | Number of test runs |
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
| Machine Hours | Number of Setups | Number of Moves | Number of Customer Orders | Number of Test Runs | Units | ||
| M5 | 2,900 | 80 | 180 | 820 | 50 | 7,250 | |
| Z4 | 1,850 | 110 | 270 | 2,260 | 320 | 4,625 | |
| I8 | 1,850 | 110 | 450 | 1,020 | 130 | 4,625 | |
| Total | 6,600 | 300 | 900 | 4,100 | 500 | 16,500 | |
Each product requires 0.9 machine hour per unit.
Required:
If required, round all per unit amounts to the nearest cent.
1. Determine the activity rate for each activity.
| Production | $ per machine hour |
| Setup | $ per setup |
| Material handling | $ per move |
| Inspection | $ per cust. ord. |
| Product Engineering | $ per test run |
2. Determine the total and per-unit activity cost for all three products.
| Total Activity Cost | Activity Cost Per Unit | |
| M5 | $ | $ |
| Z4 | $ | $ |
| I8 | $ | $ |
3. Why arenât the activity unit costs equal across all three products since they require the same machine time per unit?
The unit costs are different because the products consume many activities in ratios different from the .
Problem 17-3A (Part Level Submission)
Shaker Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2017 are as follows.
| Overhead Cost Pools | Amount | |
| Purchasing | $73,800 | |
| Handling materials | 82,160 | |
| Production (cutting, milling, finishing) | 221,000 | |
| Setting up machines | 96,250 | |
| Inspecting | 96,000 | |
| Inventory control (raw materials and finished goods) | 131,040 | |
| Utilities | 450,000 | |
| Total budgeted overhead costs | $1,150,250 |
For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 100,000 machine hours are budgeted.
Jeremy Nolan, owner-manager of Shaker Stairs Co., recently directed his accountant, Bill Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Jeremy Nolanâs request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.
| Activity Cost Pools | Cost Drivers | Expected Use of | ||
| Purchasing | Number of orders | 600 | ||
| Handling materials | Number of moves | 8,000 | ||
| Production (cutting, milling, finishing) | Direct labor hours | 100,000 | ||
| Setting up machines | Number of setups | 1,250 | ||
| Inspecting | Number of inspections | 6,000 | ||
| Inventory control (raw materials and finished goods) | Number of components | 168,000 | ||
| Utilities | Square feet occupied | 90,000 |
Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor. At Steveâs request, Bill prepares cost estimates for producing components for 250 stairways so Steve can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 250 stairways.
| Direct materials | $104,200 | |
| Direct labor | $112,200 | |
| Machine hours | 15,300 | |
| Direct labor hours | 5,300 | |
| Number of purchase orders | 60 | |
| Number of material moves | 800 | |
| Number of machine setups | 100 | |
| Number of inspections | 450 | |
| Number of components | 16,000 | |
| Number of square feet occupied | 8,000 |
a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
(b) What is the manufacturing cost per stairway under traditional costing?
(c) What is the manufacturing cost per stairway under the proposed activity-based costing?(Prepare all of the necessary schedules.)
(d) Which of the two costing systems is preferable in pricing decisions and why?
