ACC 117 Lecture Notes - Lecture 26: Activity-Based Costing, Golf Cart

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redminnow421

26 Nov 2020

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A more accurate (precise) way of allocating manufacturing overhead. Estimated manufacturing overhead ($) // estimated cost driver. Engineering costs -- # of engineering changes, # of machine set ups (splitting overhead up to see what jobs are using what resources, instead of using one predetermined rate) Supports internal decision making by assigning costs to cost objects based on the activities performed by the cost objects. Ordinarily used as a supplement to a company"s main costing system. Non-manufacturing costs assigned to products only if the products cause the costs (traditional never allocated) Many cost pools based on measure of activity. Define activities, activity cost pools, and activity measures. Assign overhead costs to activity cost pools. Assign overhead costs to cost objects using activity rates. Prepare management reports (1) define activities, activity cost pools, and activity measures. Activity event that causes a cost to be incurred for producing a product / service.

Related Questions

Mathias Company manufactures a number of specialized machineparts. Part Bunkka-22 uses $35 of direct materials and $15 ofdirect labor per unit.

Mathiasâ estimated manufacturing overhead is as follows:

Materials handling $100,000

Machining 200,000

Factory supervision 150,000

Total $450,000

Overhead is applied based on direct labor costs, which wereestimated at $200,000.

Mathias is considering adopting activity-based costing. The costdrivers are estimated at:

Activity Cost Driver Expected Use

Materials handling Weight of materials 50,000 pounds

Machining Machine hours 20,000 hours

Factory supervision Direct labor hours 12,000 hours

(a) Compute the cost of 1,000 units of Bunkka-22 using thecurrent traditional costing system.

Total cost of Bunkka-22 $ ??

(b) Compute the cost of 1,000 units of Bunkka-22 using theproposed activity-based costing system. Assume the 1,000 units use2,500 pounds of materials, 500 machine hours, and 1,000 directlabor hours. (Round intermediate calculations to 2 decimal places,e.g. 1.25.)

Total cost of Bunkka-22 $ ??

maroonelephant933

P7B-3 - Please explain how you arrived at your answers.Thank you!

Problem 7B-3 Activity-Based Costing as an Alternative toTraditional Product Costing [LO7]

Rehm Company manufactures a product that is available in both adeluxe model and a regular model. The company has manufactured theregular model for years. The deluxe model was introduced severalyears ago to tap a new segment of the market. Since introduction ofthe deluxe model, the companyâs profits have steadily declined, andmanagement has become increasingly concerned about the accuracy ofits costing system. Sales of the deluxe model have been increasingrapidly.

Manufacturing overhead isassigned to products on the basis of direct labor-hours. For thecurrent year, the company has estimated that it will incur$5,858,600 in manufacturing overhead cost and produce 12,000 unitsof the deluxe model and 130,000 units of the regular model. Thedeluxe model requires 1.0 hours of direct labor time per unit, andthe regular model requires .5 hours. Material and labor costs perunit are as follows:

	Model
	Deluxe		Regular
Directmaterials	$	150	$	114
Direct labor	$	19	$	10

1a.

Using direct labor-hours as the base for assigning manufacturingoverhead cost to products, compute the predetermined overhead rate.(Round your answer to 2 decimalplaces. Omit the "$" sign in yourresponse.)

Predeterminedoverhead rate

$ per DLH

1b.

Using the predetermined overhead rate computed in 1-a above andother data from the problem, determine the unit product cost ofeach model. (Round your intermediate calculations and finalanswers to 2 decimal places. Omit the "$" sign in yourresponse.)

	Deluxe	Regular
Unit productcost	$	$

2.	Management is considering using activity-based costing to applymanufacturing overhead costs to products for external financialreports. The activity-based costing system would have the followingfour activity cost pools:

Activity CostPool	ActivityMeasure	Estimated Overhead Cost
Purchase orders	Number of purchaseorders	$	233,700
Scrap/reworkorders	Number ofscrap/rework orders		500,400
Product testing	Number of tests		1,624,500
Machine related	Machine-hours		3,500,000

Total overheadcost		$	5,858,600

	Expected Activity
ActivityMeasure	Deluxe	Regular	Total
Number of purchaseorders	410	820	1,230
Number ofscrap/rework orders	400	320	720
Number of tests	6,840	10,260	17,100
Machine-hours	20,000	30,000	50,000

Compute the predetermined overhead rates (i.e., activity rates)for each of the four activity cost pools.(Omit the "$" signin your response.)

Activity CostPool	Predetermined Overhead Rate
Purchase orders	$	per purchase order
Scrap/reworkorders	$	per scrap/rework orders
Product testing	$	per test
Machine related	$	per MH

Using thepredetermined overhead rates computed in part (2) above, do thefollowing:

Compute the total amount of manufacturing overhead cost thatwould be applied to each model using the activity-based costingsystem. After these totals have been computed, determine the amountof manufacturing overhead cost per unit for each model.(Round your overhead per unit to 2 decimalplaces. Omit the "$" sign in yourresponse.)

Activity CostPool	Deluxe	Regular
Total overheadcost	$	$
Overhead cost perunit	$	$

b.	Compute the unit product cost of each model (materials, labor,and manufacturing overhead). (Round youranswers to 2 decimal places. Omit the "$" sign in yourresponse.)

	Deluxe	Regular
Directmaterials	$	$
Direct labor
Manufacturingoverhead (above)

Total unit productcost	$	$

chocolatemarten49

Cabat Company manufactures two products, Product C and Product D. The company estimated it would incur $189,910 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor-hours. Data concerning the current periodâs operations appear below:

	Product C			Product D
Estimated volume		4,400	units			3,600	units
Direct labor-hours per unit		2.40	hours			2.00	hour
Direct materials cost per unit	$	17.60			$	30.90
Direct labor cost per unit	$	15.60			$	12.00

Requried:
a-1.	Compute the predetermined overhead rate under the current method. (Round your answer to 2 decimal places.)

Predertemined overhead rate

____ per DLH

a-2.

Determine the unit product cost of each product for the current year. (Do not round your intermediate calculations. Round your final answer to 2 decimal places.)

	Product C	Prodcut D
Unit Product Cost

The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor-hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:

Activity Cost Pools	Estimated Overhead Costs		Expected Activity
Activity Cost Pools	Estimated Overhead Costs		Product C	Product D	Total
Machine setups	$	13,390	230	240	470
Purchase orders		78,840	1,060	1,400	2,460
General factory		97,680	10,560	7,200	17,760

Total	$	189,910

Determine the unit product cost of each product for the current period using the activity-based costing approach. (Round your intermediate calculations and final answers to 2 decimal places.)

	Product C	Prodcut D
Unit Product Cost

crimsonyellowjacket954

ACC 117 Lecture Notes - Lecture 26: Activity-Based Costing, Golf Cart

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