Activity Based Costing?

Question

Ace produces 2 models of mobiles: A and B. The company has 5 categories of overhead costs totalling $4,150,000.

Machine operating 47.5%

Purchasing 20%

Receiving 15%

Handling 10%

Shipping 7.5%

Current capacity is 200,000 machine hrs, and the current production uses 100% of available hrs. The sales mix is 45% A and 55% B. Overhead costs are applied to each model based on machine hrs. Production costs and other info follows

________________A_____B

Direct materials per unit $8000____$6500

Direct labor per unit____$1900____$1750

Applied overhead _______?________?

# of units produced_____450______550

# of purchases _________5_______4

# of shipments rec'd _____3_______3

% of machine hrs consumed by each product___________47%_53%

# of moves in handling ___75_____ 100

# of kilo to ship________4100____ 4250

Ace would like to sell each Regular model for a markup of 15%. Use an activity-based approach to determine the appropriate selling price. Show all supporting calc

Answer 1

the numbers are ugly as they're not in even round numbers.

Machine operating 47.5%=1,971,250.00

Purchasing 20%=830,000.00

Receiving 15%=622,500.00

Handling 10%=415,000.00

Shipping 7.5%=311,250.00

Because they're going to use ABC to allocate the cost, the statement "Overhead costs are applied to each model based on machine hrs" is irrelevant. Instead, the OH needs to allocated based on each activity.

# of purchases _________5_______4 461,111.11 and 368,888.89

# of shipments rec'd _____3_______3 311,250.00 and 311,250.00

% of machine hrs consumed by each product___________47%_53% 926,487.50 and 1,044,762.50

# of moves in handling ___75_____ 100 177,857.14 and 237,142.86

# of kilo to ship________4100____ 4250 152,829.34 and 158,420.66

Total OH cost for A = 2,029,535.10

and B = 2,120,464.90

OH cost/ unit (divide by units produced for each product), A = 4,510.08, B = 3,855.39

TC/ unit A = 14,410.08, B = 12,105.39

Selling price A = 16,571.59, B = 13,921.20