Question

5. (1 mark) Lauren's Volleyball Company produces two types of volleyba Both products pass through two producing departments. The Other intensive than the Volleylite. The Volleylite is also more pop two products: es two types of volleyballs: Volleylite and Official Game. ments. The Official Game production is much more labour- te is also more popular. The following data have been gathered for the Product Data Official Game Units produced per year Machine hours Volleylite 200,000 + 40,000 + 30,000 20,000 10,000 30,000 Packing orders Lauren's Volleyball has decided to use activity-based costing and has developed two types of activities, machine related (based on machine hours), and other manufacturing overhead (based on packing orders). Machine-related costs equal $240,000. Other manufacturing overhead costs equal 320.00 A. Calculate the activity rate for machine-related costs based on machine hours. B. Calculate the activity rate for other manufacturing overhead costs based on packing orders. C. Using the two activity rates, calculate the manufacturing overhead cost per unit for Official Game. D. Using the two activity rates, calculate the manufacturing overhead cost per unit for Volleylite.

Answer 1

5)

A. Calculation of activity rate for machine-related costs based on machine hours

Total machine-related costs = $240,000

Total machine hours = Machine hours for Official game + Machine hours for Volley lite

                                  = 10,000 + 40,000

                                  = 50,000

Activity rate = Total machine-related costs / Total machine hours

                   = $240,000 / 50,000

                   = $4.8 per machine hour

B. Calculation of activity rate for other manufacturing overhead costs based on packing orders

Total other manufacturing overhead costs = $240,000

Total packing orders = Packing orders for Official game + Packing orders for Volley lite

                                 = 30,000 + 30,000

                                 = 60,000

Activity rate = Total other manufacturing overhead costs / Total packing orders

                    = $240,000 / 60,000

                    = $4 per packing order

Both machine-related costs and other manufacturing overhead costs form part of Manufacturing Overhead costs.

C. Calculation of Manufacturing Overhead cost per unit for Official game

With the given data, Manufacturing Overhead cost per unit for Official game

Manufacturing Overhead cost per unit
	Particulars	Amount
A	Machine related costs	$48,000
	(10,000 machine hours * $4.8 per machine hour)
B	Other manufacturing overheads	$120,000
	(30,000 packing orders * $4 per packing order)
C	Total Manufacturing Overheads	$168,000
D	No. of units produced	20,000
E	Manufacturing Overhead cost per unit {E = (C/D)}	$8.4

D. Calculation of Manufacturing Overhead cost per unit for Volley lite

With the given data, Manufacturing Overhead cost per unit for Volley lite

Manufacturing Overhead cost per unit
	Particulars	Amount
A	Machine related costs	$192,000
	(40,000 machine hours * $4.8 per machine hour)
B	Other manufacturing overheads	$120,000
	(30,000 packing orders * $4 per packing order)
C	Total Manufacturing Overheads	$312,000
D	No. of units produced	200000
E	Manufacturing Overhead cost per unit {E = (C/D)}	$1.56