Question

Question 2 PFlag question Not complete Marked out of 6.00 Activity-Based Costing and Conventional Costs Compared Chef Grill Company manufactures two types of cooking grills: the Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold in upscale outdoor shops; the Smoker is sold in major discount stores. Following is information pertaining to the manufacturing costs for the current month. Gas Cooker Charcoal Smoker Units 1,000 3,000 Number of batches 20 10 Number of batch moves 80 20 Direct materials $30,000 $100,000 Direct labor $20,000 $29,000 Manufacturing overhead follows: Activity Cost Driver Cost Materials acquisition and inspection $299,000 Amount of direct materials cost Materials movement Number of batch moves 16,600 18,000 Number of batches Scheduling $333,600 Rounding instructions: Do not round until your final answers. Round total cost answers to the nearest dollar and per unit answers to the nearest cent. (a) Determine the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker for the month, assuming all manufacturing overhead is assigned on the basis of direct labor dollars. HINT: Use 6.8082 for overhead rate calculations.

Answer 1

Answer 1)

Calculation of Total Cost and per unit cost of each product on the assumption that manufacturing overheads are allocated on the basis of direct labour dollars

Particulars	Gas Cooker	Charcoal Smoker
Direct materials	$ 30,000	$ 100,000
Direct labour	$ 20,000	$ 29,000
Manufacturing overheads	$ 136,163.27	$ 197,436.73
Total Cost	$ 186,163.27	$ 326,436.73
Total Cost (rounded off)	$ 186,163	$ 326,437
Number of Units produced	1,000	3,000
Cost per unit	$ 186.16	$ 108.81

Therefore total cost of Gas Cooker is $ 186,163 and that of Charcoal smoker is $ 326,437. Also cost per unit of Gas cooker is $ 186.16 and that of charcoal smoker is $ 108.81.

Working Notes:

Overhead rate (based on labour dollars)

Overhead rate (based on labour dollars) = Total manufacturing overheads/ Total labour cost

                                                                   = $ 333,600/ ($ 20,000 + $ 29,000)

                                                                   = $ 333,600/ $ 49,000

                                                                   = $ 6.8082 per labour dollar

Therefore overhead rate is $ 6.8082 per labour dollar.

Allocation of overhead costs:

Overhead cost allocated to a product = (Labour cost is dollars of that product X overhead rate based on labour dollars)

Gas Cooker:

Allocated overhead cost = $ 20,000 X $ 6.8082

                                             = $ 186,163.27      

Manufacturing overhead cost allocated to Gas cooker is $ 186,163.27

Charcoal Smoker:

Allocated overhead cost = $ 29,000 X $ 6.8082

                                             = $ 326,436.73      

Manufacturing overhead cost allocated to Charcoal smoker is $ 326,436.73

Answer 2)

Calculation of Total Cost and per unit cost of each product on the assumption that manufacturing overheads are allocated using Activity Based Costing

Particulars	Gas Cooker	Charcoal Smoker
Direct materials	$ 30,000	$ 100,000
Direct labour	$ 20,000	$ 29,000
Manufacturing overheads:
Materials Acquisition and inspection	$ 69,000	$ 230,000
Materials movement	$ 13,280	$ 3,320
Scheduling	$ 12,000	$ 6,000
Total Cost	$ 144,280	$ 368,320
Number of Units produced	1,000	3,000
Cost per unit	$ 144.28	$ 122.77

Therefore total cost of Gas Cooker is $ 144,280 and that of Charcoal smoker is $ 368,320. Also cost per unit of Gas cooker is $ 144.28 and that of charcoal smoker is $ 122.77.

Working Notes:

Calculation of total number of activities of each cost driver:

Cost Driver	Gas Cooker	Charcoal Smoker	Total Number of Activities
Amount of direct materials cost	$ 30,000	$ 100,000	$ 130,000
Number of batch moves	80 batch moves	20 batch moves	100 batch moves
Number of batches	20 batches	10 batches	30 batches

Calculation of Cost per Activity for each activity driver:

Activity	Overhead Cost	Cost Driver	Number of Activities	Overhead Cost per Activity
Materials Acquisition and inspection	$ 299,000	Amount of direct materials cost	$ 130,000	$ 2.30 per dollar of direct material cost
Materials movement	$ 16,600	Number of batch moves	100 batch moves	$ 166 batch moves
Scheduling	$ 18,000	Number of batches	30 batches	$ 600 per batch
Total	$ 333,600

Calculation of Overhead cost allocated to Gas Cooker based on Activities consumed

Activity	Cost Driver	Number of Activities	Overhead Cost per Activity	Allocated Overhead Cost
Materials Acquisition and inspection	Amount of direct materials cost	$ 30,000	$ 2.30 per dollar of direct material cost	$ 69,000
Materials movement	Number of batch moves	80 batch moves	$ 166 per batch moves	$ 13,280
Scheduling	Number of batches	20 batches	$ 600 per batch	$ 12,000

Calculation of Overhead cost allocated to Charcoal Smoker based on Activities consumed

Activity	Cost Driver	Number of Activities	Overhead Cost per Activity	Allocated Overhead Cost
Materials Acquisition and inspection	Amount of direct materials cost	$ 100,000	$ 2.30 per dollar of direct material cost	$ 230,000
Materials movement	Number of batch moves	20 batch moves	$ 166 per batch moves	$ 3,320
Scheduling	Number of batches	10 batches	$ 600 per batch	$ 6,000