Question

lack Corporation has the following ost pools: predicted indirect costs and cost drivers 2018 18 te givell deuoll Finishing Department Cost Driver Maintenance Materials handling Machine setups Inspections Fabrication Department $65,000 30,000 70,000 $55,000 Machine hours 15,000 Material moves 5,000 Machine setups 25,000 Inspection hours $165,000 $100,000 The following activity predictions were also made for the year: Machine hours Material moves Machine setups Inspection hours Fabrication Department Finishing Department 5,000 1,500 50 1,000 10,000 3,000 700 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president, Charles Slack, is trying to evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company-wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates The production manager has provided the following data for the production of a batch of 100 units for each of these models ZX300 SL500 Direct materials cost17000 23,000 5,000 $4,000 Direct labor cost

Answer 1

a. Overhead rate per machine hour = total indirect cost/machine hours
$265000/15000hrs.
$                                                                                                                                                                                                                                                       17.67
Product	cost	per unit
Particulars	ZX300	SL500
Direct material	17000	23000
Direct labour cost	5000	4000
Manufacturing overhead	$ 12,369.00	$      884.00
	(17.67x700)	(17.67*50)
Total cost for the batch	$ 34,369.00	$ 27,884.00
Number of units per batch	100	100
Product cost per unit	$343.69	$278.84
b. overhead rate based on machine hour for fabrication department = total indirect cost for fabrication department/total machine hours for fabrication department
$165000/10000
$                                                                                                                                                                                                                                                       16.50
Overhead rate based on machine hour for finishing department = total indirect cost for finishing department/total machine hours for finishing department
100000/5000
$                                                                                                                                                                                                                                                       20.00
Product	Cost	per unit
Particulars	ZX300	SL500
Direct material	17000	23000
Direct labour	5000	4000
Manufacturing overhead :
Febrication department	8250	11550
	(500x16.5)	(700x16.5)
Finishing department	4000	2000
	(200x20)	(100x20)
Total cost for the batch	$34,250	$40,550
Total units per batch	100	100
Product cost per unit	$343	$406
c. Following are the activity based overhead rate :-
Maintenance activity $8 per machine hours
Material Handeling    = $10 per material move
Machine set ups = $100 per machine setup
Inspection activities $25 per inspection
Product	Cost	per unit
Particulars	ZX300	SL500
Direct material	17000	23000
Direct labour cost	5000	4000
Manufacturing overhead :-
Maintenance activity	5600	6400
Material handeling activity	300	500
Machine setup	500	900
Inspection activity	750	1500
Total cost for the batch	$29,150	$36,300
Number of units for the batch	100	100
Product cost per unit	$291.50	$363