Instructions (a) Under traditional product costing, compute the total unit cost
ID: 2578673 • Letter: I
Question
Instructions
(a)
Under traditional product costing, compute the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 4-3).
(b)
Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
(c)
Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)
(d)
Compute the total cost per unit for each product under ABC.
(e)
Classify each of the activities as a value-added activity or a non-value-added activity.
(f)
Comment on (1) the comparative overhead cost per unit for the two products under ABC, and (2) the comparative total costs per unit under traditional costing and ABC.
(a) Unit cost—H.M. $62.18
(c) Cost assigned—H.M. $1,086,500
(d) Cost/unit—H.M. $57.62
The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.
Estimated
Overhead
Expected
Use of
Cost
Drivers
Expected Use
of Drivers by
Product
$1,584,280
Estimated
Overhead
Expected
Use of
Cost
Drivers
Expected Use
of Drivers by
Product
Activity Cost Pools Cost Drivers Home Commercial Receiving Pounds $80,400 335,000 215,000 120,000 Forming Machine hours 150,500 35,000 27,000 8,000 Assembling Number of parts 412,300 217,000 165,000 52,000 Testing Number of tests 51,000 25,500 15,500 10,000 Painting Gallons 52,580 5,258 3,680 1,578 Packing and shipping Pounds 837,500 335,000 215,000 120,000$1,584,280
Explanation / Answer
Answer a. Cost per Unit Under Traditional Product Costing Home Fire Extinguisher Commercial Fire Extinguisher Direct Material 18.50 26.50 Direct Labor 19.00 19.00 Overhead: Home - 1.50 DLH X $16.45 24.68 Commercial - 1.50 DLH X $16.45 24.68 Total Cost per pound 62.18 70.18 Answer b. ABC Costing Activity Overhead Cost Driver Quantity Allocation Rate Receiving 80,400 335,000 pounds 0.24 per pound Forming 150,500 35,000 Mach Hrs 4.30 per mach hr Assembling 412,300 217,000 no. of parts 1.90 per part Testing 51,000 25,500 no. of tests 2.00 per test Painting 52,580 5,258 gallons 10.00 per gallon Packaging & Shipping 837,500 335,000 pounds 2.50 per pound Total 1,584,280 Answer c. Assigning Overhead Cost to Product Model Using ABC Method Activity Based Overhead Rate Home Fire Extinguisher Commercial Fire Extinguisher Cost Driver Incurred OH Allocated Cost Driver Incurred OH Allocated Receiving 0.24 per pound 215,000 pounds 51,600 120,000 pounds 28,800 Forming 4.30 per mach hr 27,000 Mach Hrs 116,100 8,000 Mach Hrs 34,400 Assembling 1.90 per part 165,000 no. of parts 313,500 52,000 no. of parts 98,800 Testing 2.00 per test 15,500 no. of tests 31,000 10,000 no. of tests 20,000 Painting 10.00 per gallon 3,680 gallons 36,800 1,578 gallons 15,780 Packaging & Shipping 2.50 per pound 215,000 pounds 537,500 120,000 pounds 300,000 Total Overhead Cost 1,086,500 497,780 No. of Units Produced 54,000 10,200 Ovrehead Cost per Unit 20.12 48.80 Answer d. Cost per Unit Under ABC Costing Home Fire Extinguisher Commercial Fire Extinguisher Direct Material 18.50 26.50 Direct Labor 19.00 19.00 Overhead Cost 20.12 48.80 Total Cost per Unit 57.62 94.30 Answer e. Receiving Non-Value Added Forming Value Added Assembling Value Added Testing Non-Value Added Painting Value Added Packaging & Shipping Value Added Answer f. Home Fire Extinguisher Commercial Fire Extinguisher Cost Under Traditional Costing 62.18 70.18 Cost Under ABC Costing 57.62 94.30 Difference 4.55 (24.13)