Question

Activity-Based Costing

Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools:

	Fabrication Department	Finishing Department	Cost Driver
Maintenance	$ 54,000	27,000	Machine hours
Materials handling	81,000	40,500	Material moves
Machine	189,000	13,500	Machine setups
Inspections	-	67,500	Inspection hours
Total	$ 324,000	$ 148,500

The following activity predictions were also made for the year:

	Fabrication Department	Finishing Department
Machine hours	5,000	2,500
Material moves	1,500	750
Machine setups	350	25
Inspection hours	-	500

It is assumed that the cost per unit of activity for a given activity does not vary between departments. Steampunk's president, Abner Punk, is trying to evaluate the company's product mix strategy regarding two of its product models, SW100 and SG150. The company has been using a company wide overhead rate based on machine hours but is considering switching to either department rates of activity-based rate. The production manager has provided the following data for the production of a batch of 100 units for each of these models:

	SW100	SG150
Direct materials cost	$ 18,000	$ 27,000
Direct labor cost	$ 7,200	$ 5,400
Machine hours (Fabrication)	250	350
Machine hours (Finishing)	100	50
Materials moves	20	40
Machine setups	5	10
Inspection hours	15	30

a. Determine the cost of one unit each of SW100 and SG150, assuming a company-wide overhead rate is used based on total machine hours.

Round rate to two decimal places.

Overhead rate based on total machine hours: $Answer per machine hour

Use rounded overhead rate calculated about for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

b. Determine the cost of one unit of SW100 and SG150, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.

Round to two decimal places, if applicable.

Overhead rate based on machine hours for Fabrication Dept.: $Answer per machine hour.

Overhead rate based on machine hours for Finishing Dept.: $Answer per machine hour.

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Fabrication Dept.	Answer	Answer
Finishing Dept.	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

c. Determine the cost of one unit of SW100 and SG150, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.

Round rate to two decimal places, if applicable.

Activity-based overhead rates:
Maintenance	Answer
Materials handling	Answer
Machine setup	Answer
Inspection activities	Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

Product Costs per Unit	SW100	SG150
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Maintenance activity	Answer	Answer
Maintenance handling activity	Answer	Answer
Machine setups activity	Answer	Answer
Inspections activity	Answer	Answer
Total cost per batch	Answer	Answer
Number of units per batch	Answer	Answer
Cost per unit	Answer	Answer

Answer 1

a.

Overhead rate based on total machine hours = $472,500 / 7,500 = $63 per machine hour

Product cost per unit	SW100	SG150
Direct material	$18,000	$27,000
Direct labor	7,200	5,400
Manufacturing overhead	22,050	25,200
Total cost per batch	47,250	57,600
Number of units per batch	100	100
Cost per unit	$472.5	$576

b.

Overhead rate based on machine hours for fabrication department = $324,000 / 5,000 = $64.8 per machine hour

Overhead rate based on machine hours for finishing department = $148,500 / 2,500 = $59.4 per machine hour

Product cost per unit	SW100	SG150
Direct material	$18,000	$27,000
Direct labor	7,200	5,400
Manufacturing overhead:
Fabrication department	16,200	22,680
Finishing department	5,940	2,970
Total cost per batch	47,340	58,050
Number of units per batch	100	100
Cost per unit	$473.4	$580.5

c.

Activity based overhead rates:
Maintenance ($81,000/7,500)	$10.8
Material handling ($121,500/2,250)	54
Machine setup ($202,500/375)	540
Inspection activities ($67,500/500)	135

Product cost per unit	SW100	SG150
Direct material	$18,000	$27,000
Direct labor	7,200	5,400
Manufacturing overhead:
Maintenance activity	3,780	4,320
Maintenance handling activity	1,080	2,160
Machine setups activity	2,700	5,400
Inspection activity	2,025	4,050
Total cost per batch	34,785	48,330
Number of units per batch	100	100
Cost per unit	$347.85	$483.3