1. ActivityBased Costing
Duncan Company recently introduced a markers to complement theirother product, pencils. Accountants accumulate all overhead in asingle cost pool and allocate it based on machine-hours. With therecent addition of an expanded computer system, Duncan decided tobegin implementing ABC. A study reveals much overhead cost relatedto machine setups and batch changes. They select the number ofsetups and the number of batch changes as the activity driers forthe two new cost pools. They will continue to use machine-hours asthe base for allocating all remaining overhead. Accountants providethe following information about Duncan Companyâs most recent yearof operations:
Pencils Markers Total
Unitsproduced 5,0001,000 6,000
Direct material cost perunit $ 5 $ 3
Direct laborcost 200,000$300,000 $500,000
Machinehours 4,0006,000 10,000
Machinesetups 3050 80
Batchchanges 300700 1,000
Overhead:
Machinesetup-related $ 200,000
Batch-related 500,000
Other 1,500,000
$2,200,000
========
Required:
Using the current costing system (Absorption costing), determinethe total and unit cost for each product line.
Using the ABC costing system, determine the total and unit costfor each product line.
If you were the manager of the pencil department, which methodwould you prefer and why?
Product Costs using the Current Costing System
(Absorption Costing)
OHR =
Pencils Markers Total
Direct Material $ $ $
Direct Labor
Overhead
(OHR x AV)
TotalCost $ $ $
=======
÷Units produced
Cost per unit
======= =======
Product Costs using the ABC Costing System
OHR #1 =____________=
OHR #2 = ____________=
OHR #3 = ____________=
Pencils Markers Total
Direct Material $ $ $
Direct Labor
Overhead
(OHR x AV)
TotalCost $ $ $
÷Units produced =======
Cost per unit
======= =======
1. ActivityBased Costing
Duncan Company recently introduced a markers to complement theirother product, pencils. Accountants accumulate all overhead in asingle cost pool and allocate it based on machine-hours. With therecent addition of an expanded computer system, Duncan decided tobegin implementing ABC. A study reveals much overhead cost relatedto machine setups and batch changes. They select the number ofsetups and the number of batch changes as the activity driers forthe two new cost pools. They will continue to use machine-hours asthe base for allocating all remaining overhead. Accountants providethe following information about Duncan Companyâs most recent yearof operations:
Pencils Markers Total
Unitsproduced 5,0001,000 6,000
Direct material cost perunit $ 5 $ 3
Direct laborcost 200,000$300,000 $500,000
Machinehours 4,0006,000 10,000
Machinesetups 3050 80
Batchchanges 300700 1,000
Overhead:
Machinesetup-related $ 200,000
Batch-related 500,000
Other 1,500,000
$2,200,000
========
Required:
Using the current costing system (Absorption costing), determinethe total and unit cost for each product line.
Using the ABC costing system, determine the total and unit costfor each product line.
If you were the manager of the pencil department, which methodwould you prefer and why?
Product Costs using the Current Costing System
(Absorption Costing)
OHR =
Pencils Markers Total
Direct Material $ $ $
Direct Labor
Overhead
(OHR x AV)
TotalCost $ $ $
=======
÷Units produced
Cost per unit
======= =======
Product Costs using the ABC Costing System
OHR #1 =____________=
OHR #2 = ____________=
OHR #3 = ____________=
Pencils Markers Total
Direct Material $ $ $
Direct Labor
Overhead
(OHR x AV)
TotalCost $ $ $
÷Units produced =======
Cost per unit
======= =======
