Question

A company makes two products - Widgets and Spindles. Data regarding the two products follow: Direct Labor- Hours Widgets Spindles per Unit 0.90 0.50 Annual Production 18,000 units 43,000 units Additional information about the company follows: a. Widgets require $23 in direct materials per unit, and Spindles require $14. b. The direct labor wage rate is $17 per hour. c. Widgets are more complex to manufacture than Spindles and they require special processing. d. The company's activity-based absorption costing system has the following activity cost pools: Activity Cost Pool (and Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (Direct labor-hours) Estimated Overhead Cost $ 25,920 $ 123,000 $ 339,300 Expected Activity Widgets Spindles Total 120 96 216 4,100 4,100 16,200 21,500 37,700

Answer 1

Ans. 1	*Activity rate =   Estimated overhead / Total expected activity
	Activity cost pool	Estimated overhead (a)	Total expected activity (b)		Activity rates (a/b)
	Machine setups	$25,920	216	setups	$120.00	per setup
	Special processing	$123,000	4100	machine hours	$30.00	Per machine hour
	General factory	$339,300	37700	Direct labor hours	$9.00	Per direct labor hour
Ans. 2		Widgets	Spindles
	Direct materials	$414,000	$602,000
	Direct labor cost	$275,400	$365,500
	Manufacturing overhead	$283,200	$205,020
	Total manufacturing cost (a)	$972,600	$1,172,520
	Annual production (b)	18000	43000
	Unit Product Cost (a/b)	$54.03	$27.27
	Unit product cost = Total manufacturing cost / Annual production
	*Working Notes :
Step 1:	*Calculations of Overhead cost assigned:
		WIDGETS			SPINDLES
	Activity cost pool	Expected activity	Activity rate	Cost	Expected activity	Activity rate	Cost
		per product (a)	(b)	Assigned (a*b)	per product (a)	(b)	Assigned (a*b)
	Machine setups	120	$120	$14,400	96	$120	$11,520
	Special processing	4100	$30	$123,000	0	$30	$0
	General factory	16200	$9	$145,800	21500	$9	$193,500
	Total Manufacturing Overhead			$283,200			$205,020
	*Cost assigned = Expected activity per product * Activity rates
Step 2:	*Calculations of Direct materials cost:
	*Direct materials =   Annual production * Direct materilas cost per unit
	Widgets	18,000 * $23	$414,000
	Spindles	43,000 * $14	$602,000
Step 3:	*Calculations of Direct labor cost:
	First of all, we need to calculate the direct labor hours.
	Direct labor hours = Annual production * Direct labor hours per unit
	Widgets	18,000 * 0.90	16200	hours
	Spindles	43,000 * 0.50	21500	hours
	Direct labor cost = Direct labor hours * Direct labor wage rate
	Widgets	16,200 * $17	$275,400
	Spindles	21,500 * $17	$365,500