Problem 6-12 (Part Level Submission) The Marx Shoppe is a national bakery that i
ID: 2541383 • Letter: P
Question
Problem 6-12 (Part Level Submission) The Marx Shoppe is a national bakery that is known for its strawberry cheesecake. It makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools: Strawberry Cheesecake: Annual production Direct materials per unit Direct labor per unit 19,200 units $10 $2 Cost Pool Materials ordering Materials inspection Equipment setup Quality control Other Total manufacturing overhead Cost $76,680 73,800 90,300 67,080 74,800 $382,660 Cost Driver Number of purchase orders Number of receiving reports Number of setups Number of inspections Direct labor cost Annual activity information related to cost drivers Strawberry Cheesecake 110 Cost Pool All Products Materials ordering Materials inspection Equipment setup Quality control Other 8,520 orders 360 receiving report 2,580 setups 2,580 inspections 180 $38,400 $1,870,000 direct laborExplanation / Answer
Solution:
Activity Based Costing System
- ABC is a costing method which identifies the activities in the organization and assigns the cost of each activity with resources to all the products or services according to the actual consumption of activity by the product or service.
- This system determines all the activities related to product or production process.
- This system calculates the cost of those activities which are related to product or production process and thereafter determine the cost of the product.
- In ABC costing the overhead costs are distributed to the product on the basis of benefit received from indirect activity.
- It helps to distribution of overheads on the basis of activities.
The Activity based overhead rate = Estimated Overheads related to the activity / Total Cost Driver per activity or Expected Total Activity)
Part 1 – Calculation of Overhead Rate per unit of activity
Activity Cost Pool
Expected Overhead Costs (A)
Total Expected Activity (B)
Overhead Rate per Unit of Activity (C = A/B)
Material ordering
$76,680
8520
orders
$9.00
per order
Materials inspection
$73,800
360
receiving report
$205.00
per receiving report
Equipment Setup
$90,300
2580
setups
$35.00
per setup
Quality control
$67,080
2580
inspections
$26.00
per inspection
other
$74,800
$1,870,000
Direct labor
$0.04
per labor cost
Total
$382,660
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Activity Cost Pool
Expected Overhead Costs (A)
Total Expected Activity (B)
Overhead Rate per Unit of Activity (C = A/B)
Material ordering
$76,680
8520
orders
$9.00
per order
Materials inspection
$73,800
360
receiving report
$205.00
per receiving report
Equipment Setup
$90,300
2580
setups
$35.00
per setup
Quality control
$67,080
2580
inspections
$26.00
per inspection
other
$74,800
$1,870,000
Direct labor
$0.04
per labor cost
Total
$382,660