Question

Total: 20 marks A company manufactures household items sold at trade shows. The items, classified as either Tables or Frames, are manufactured on a common assembly line. Although different direct materials are used, the direct labour cost is the same for each product line. The plant-wide rate for allocating manufacturing overhead to its products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in changing the cost system to a cost driver concept. with the help of the accounting department, the manager has been able to establish the following relationships between production costs and some of the indirect manufacturing activities for July, along with the production data for the two product lines: Frames Material handling Machining Assembly Inspection Activity Number of parts Machine hours Units began Number tested Cost Driver $1.00 per part $15.00 per hour $1.60 per unit $2.00 per unit Allocation Rate 2,000 205 1,000 100 Tables 1,300 300 1,300 1,200 Direct costs: Frames Labour Materials Tables $12,000 $5,200 $12,000 $2,600 Required: Using activity-based costing determine the total production cost of each of the two product lines for July and the cost per unit assuming all units started were completed. Tables Frames

Answer 1

Solution: Tables Labour Materials Overhead assigned (Note 1) Total production cost / units cost per unit Frames 12000 12000 5200 2600 6875 10280 24075 24880 1000 1300 24.08 19.14 Note 1: Material handling Machining Assembly Inspection Total cost assinged Allocation rate Expected activity Cost assigned Tables Frames Dining chairs Tables bcd=a* be=a* C 1.00 2000 13001 2000 1300 15.00 205 300 3075| 4500 L 1.60 1000 1300 1600 2080 2.00 100 1200 200 2400 6875 10280