Exercise 5-29 (parts a-b) (5-pts) At its manufacturing plant in Duluth, Minnesot
ID: 2341162 • Letter: E
Question
Exercise 5-29 (parts a-b) (5-pts) At its manufacturing plant in Duluth, Minnesota, Endo Electronics Company manufactures two products, X21 and Y37 For many years, the company has used a simple plant wide manufacturing support cost rate based on direct labor hours. A new plant accountant suggested that the company may be able to assign support costs to products more accurately by using an activity-based costing system that relies on a separate rate for each manufacturing activity that causes support costs. After studying the plant's manufacturing activities and costs, the plan accountant has collected the following data for last year: Item X21 Y37 Units produced and sold Direct labor hours used Direct labor cost Number of times handled Number of parts Number of design changes Number of product setups 100,000 300,000 $1,000,000 $4,500,000 20,000 8,000 1,000 6,000 0,000 100,000 40,000 12,000 2,000 8,000 The accountant has also determined that actual manufacturing support costs incurred last year were as follows: Cost Pool Handlin Number of parts Design changes Setups Total Activity Costs $3,000,000 2,400,000 3,300,000 2,800,000 $11,500,000 The direct materials cost for product X21 is $120 per unit, while for product Y37 it is $140 per unit. Required a) Determine the unit cost of each product using direct labor hours to allocate all manufacturing support costs b) Determine the unit cost of each product using activity-based costing.Explanation / Answer
Solution:
Part a – Unit Cost of each product using direct labor hours to allocate all manufacturing support costs
First of all we need to calculate the Plant-wide Overhead Rate using Direct labor hour.
Plant-wide Overhead Rate = Total Estimated Manufacturing Costs / Estimated Total Direct Labor Hours
= $11,500,000 / (100,000 + 300,000)
= $28.75 per direct labor hour
Unit Cost of Each Product
X21
Y37
Direct Material Cost per unit
$120.00
$140.00
Direct labor cost per unit
Product X21 = Total Direct labor cost $1,000,000 / Direct labor hours used 100,000)
$10.00
Product X37 = Total Direct labor cost $4,500,000 / Direct labor hours used 300,000)
$15.00
Applied Manufacturing Overhead (Refer Note 1)
$57.50
$86.25
Unit Product Cost
$187.50
$241.25
Note 1 --- Applied Manufacturing Overhead per unit
Product X21
Applied Manufacturing Overhead Per Unit = Direct labor hours per unit x Overhead Rate
Direct labor hour per unit = Total labor hours used / Units produced and sold
= 100,000 / 50,000
= 2 Hours Per Unit
Applied Manufacturing Overhead Per Unit = Direct labor hours per unit 2 x Overhead Rate $28.75
= $57.50
Product Y37
Direct labor hour per unit = Total labor hours used / Units produced and sold
= 300,000 / 100,000
= 3 Hours Per Unit
Applied Manufacturing Overhead Per Unit = Direct labor hours per unit 3 x Overhead Rate $28.75
= $57.50
Part b --- Unit Cost using activity based costing
X21
Y37
Direct Material Cost per unit
$120.00
$140.00
Direct labor cost per unit
Product X21 = Total Direct labor cost $1,000,000 / Direct labor hours used 100,000)
$10.00
Product X37 = Total Direct labor cost $4,500,000 / Direct labor hours used 300,000)
$15.00
Applied Manufacturing Overhead (Refer Note 2)
$144.80
$42.60
Unit Product Cost
$274.80
$197.60
Note 2 – Overhead Cost per Unit assigned to each product
X21
Y37
Cost Pool
Total Estimated Overhead Cost (A)
Total Activity of Cost Driver (B)
Activity Rate per Activity (C = A/B)
Expected Activity (H)
Overhead Assigned (C*H)
Activity Driver USAGE (S)
Overhead Assigned (C*S)
Handling
$3,000,000
60000
Number of times handled
$50
per handling
40000
$2,000,000
20000
$1,000,000
Number of parts
$2,400,000
20000
Number of parts
$120
per part
12000
$1,440,000
8000
$960,000
Design Changes
$3,300,000
3000
Number of design changes
$1,100
per design
2000
$2,200,000
1000
$1,100,000
Setups
$2,800,000
14000
Number of product setups
$200
per setup
8000
$1,600,000
6000
$1,200,000
Total Assigned Overhead Costs (A)
$11,500,000
$7,240,000
$4,260,000
Units Produced (B)
50,000 Units
100,000 Units
Overhead Cost per Unit (A / B)
$144.80
$42.60
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
X21
Y37
Direct Material Cost per unit
$120.00
$140.00
Direct labor cost per unit
Product X21 = Total Direct labor cost $1,000,000 / Direct labor hours used 100,000)
$10.00
Product X37 = Total Direct labor cost $4,500,000 / Direct labor hours used 300,000)
$15.00
Applied Manufacturing Overhead (Refer Note 1)
$57.50
$86.25
Unit Product Cost
$187.50
$241.25