Question

CURRECTED: ABC ORIGINAL PROBLEM DATA (W Excel File): CHECK FIGURES: AX40 Traditional Unit Cost: $62.75 EX90 ABC Unit Cost: $116.80 For several years, Adria Manufacturing has produced a single product called AX40. Then two years ago, the company automated a portion of its plant and at the same time introduced a second product called EX90 which has become increasingly popular. The EX90 is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The AX40 requires only 0.75 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor hours. Despite the growing popularity of the company's EX90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Material and labor costs per unit are as follows: AX40 $35 EX90 $48 Direct materials Direct labor (0.75 hour and 1.0 hour @ $12 per hour) $9 $12 Management estimates that the company will incur $1,000,000 in manufacturing overhead costs during the current year and 40,000 units of the AX40 and 10,000 units of the EX90 will be produced and sold. REQUIRED: 1. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead costs on the basis of direct labor hours. Using this rate and other data from the problem (Direct materials and labor cost), determine the unit product costs of each product. 2. Management is considering using activity-based costing to apply manufacturing overhead cost to products. The activity-based costing system would have the following activity cost pools and expected activity: Activity Cost Pool Maintaining parts inventory Processing purchase orders Quality control Machine related Activity Measure Number of part types Number of purchase orders Number of tests run Machine-hours Estimated Overhead Cost $180,000 90,000 230,000 500,000

ACCOUNTING Format for excel assignment :

Answer 1

1.

	AX40	EX40
Units……….(i)	40000	10000
Labour/unit……..(ii)	0.75	1
Total labour hours……..(i)*(ii)	30000	10000	40000
Overhead cost			1000000
Overall Rate (1000000/40000)…(iii)			25
Absorption rate for each product…(iii)*(ii)	18.75	25

Unit cost
	AX40	EX40
Direct materials	35	48
Direct labour	9	12
Overhead	18.75	25
Product cost	62.75	85

2.

Activity cost pool	Activity measure	Expected activity			Estimated overhead cost..(B)	Activity rates (C)	Applied overhead costs
		AX40..(D)	EX40…(E)	Total (A)		(B/A)	AX40 (C*D)	EX40 (C*E)
Maintaining inventory parts	No. of part types	75	150	225	180000	800	60000	120000
Processing purchase orders	no. of purchase orders	800	200	1000	90000	90	72000	18000
Quality control	no. of test runs	2500	3250	5750	230000	40	100000	130000
Machine related	Machine hours	4000	6000	10000	500000	50	200000	300000
Total							432000	568000

Unit cost
	AX40	EX40
Direct materials	35	48
Direct labour	9	12
Overhead	10.8	56.8
Calculation	432000/40000 units	568000/10000 units
Product cost	54.8	116.8