ABC Enterprises manufacures and distributes three products; A, B, and C. Over th
ID: 2451424 • Letter: A
Question
ABC Enterprises manufacures and distributes three products; A, B, and C. Over the past few years, ABC has gradually automated its operations. As a result, total direct labor hours have substantially declined , while total manufacturing overhead costs have signficantly increased. Because of these changes, ABC wants to evaluate its products costs using Activity-Based Costing procedures. The following information has been gathered from the company's internal records and budgetary system.
A B C
Units produced and sold $5000 2000 1000
Total direct material cost $90,000 50,000 40,000
Total direct labor hours $3600 2000 800
Direct labor rate per hour $9.00
Total manufacturing overhead 290000
Overhead: Number of Events
Required:
a. Calculate product costs for products A, B, and C Using a traditional costing approach using direct labor hours to assign overhead costs to products.
b. Calculate product costs for products A, B, and C using Activity-Based Costing to assign overhead costs to products.
Activity Cost Driver Total cost A B C Production no. of parts per unit 150000 20 32 68 set-up no. of production runs 90000 8 5 3 quality control no. of insepction points 50000 3 6 11Explanation / Answer
a)
Predetermined overhead rate = Overhead cost / total direct labour hours = $290000 / 6400 hours = $45.3125/DLH
b)
A B C Total a) Units Produced and sold 5000 2000 1000 b) Direct labour hours 3600 2000 800 6400 c) Direct material cost ($) 90000 50000 40000 d) direct labour cost @$9 per hour ($) 32400 18000 7200 e) Mnaufacturing overhead @ $45.3125 per DLH ($) 163125 90625 36250 290000 Total Product Cost (c + d + e) ($) 285525 158625 83450