Question

Product-Costing Accuracy, Plantwide and Departmental Rates, ABC Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products: Product-Related Data Scientific Business Units produced per year 75,000 750,000 Prime costs $249,000 $2,490,000 Direct labor hours 99,700 997,000 Machine hours 50,500 505,000 Production runs 100 150 Inspection hours 2,000 3,000 Maintenance hours 2,250 9,000 Department Data Department Department 2 73,500 139.580 213,080 26,200 B57 420 883,620 Direct labor hours: Scientific calculator Business calculator Total Machine hours: Sdentific calculator Business calculator Total Overhead costs: Setup costs Inspection costs Power 24,000 393.600 417,600 26,500 111.400 137.900 $217,500 175,000 233,000 219.000 $844,500 $217,500 175,000 138,000 231.000 $761,500 Maintenance Total Required:

Answer 1

1)	Calculation of plant wide rate based on Direct labour hours
Plant-wide rate=	Total overhead cost for Eschua/Total Direct Labour hours		Working
	16060000/1096700			Dpmt 1	Dpmt 2	Total plant-wide
	$1.46 per hour		Overhead cost ($)	844,500.00	761,500.00	1,606,000.00
				Scientific	Business	Total for Eschua
			Labour hours (Hrs)	99700	997000	1096700
	Overhead cost per unit
	Scientific	Business
(Plant wide rate per hour*direct labor hours)/ total units	$1.46 per hour * 99700hours /75000 units	$1.46 per hour * 997000hours /750000 units
	$1.94 per unit	$1.94 per unit

2) Departmental Rates
	Department 1 (Based on Machine hours)
Departmental rate per machine hour	Total overheads for Department 1/Machine hours in Department 1
	$844,500/417600 hours
	$2.02 per machine hour
	Department 2 (Based on Labor hours)
Departmental rate per labor hour	Total overheads for Department 2/Labor hours in Department 2
	$761,500/883620 hours
	$0.862 per direct labor hour
Overhead cost per unit	Scientific	Business
Machine hours	50,500	505,000
Labor hours	99,700	997,000
Units	75,000	750,000
Overhead cost per unit
[Dpmt 1 rate per machine hour*Machine hours + Dpmt 2 rate per labor hours*Labor hours]\total units	($2.02*50500+0.862*99700)/75000	($2.02*505000+0.862*997000)/750000
Total overheads for scientific calculators	$                                                                               187,951.40	$1,879,514
No. of units	75000 units	750000 units
Overheads cost per unit	$2.51 per unit	$2.51 per unit

2b) Departmental Rates
	Department 1 (Based on Labor hours)
Departmental rate per machine hour	Total overheads for Department 1/Direct Labor hours in Department 1
	$844,500/213080 hours
	$3.96 per labor hour
	Department 2 (Based on Machine hours)
Departmental rate per labor hour	Total overheads for Department 2/Machine hours in Department 2
	$761,500/137900 hours
	$5.52 per machine hour
Overhead cost per unit	Scientific	Business
Machine hours	50,500	505,000
Labor hours	99,700	997,000
Units	75,000	750,000
Overhead cost per unit
[Dpmt 1 rate per labor hour*Labor hours + Dpmt 2 rate per machine hours*Machine hours]\total units	($3.96*99700+$5.52*50500)/75000	($3.96*997000+$5.52*505000)/750000
Total overheads for scientific calculators	$                                                                               673,572.00	$6,735,720
No. of units	75000 units	750000 units
Overheads cost per unit	$8.98 per unit	$8.98 per unit

3)

Activity Cost	Dpmt 1 ($)	Dpmt 2 ($)	Total	Activity Driver	Scientific	Business	Total
Set up costs	217,500.00	2,175,000.00	2,392,500.00	Production runs	100	150	250
Inspection costs	175,000.00	175,000.00	350,000.00	Inspection hours	2000	3000	5000
Power	233,000.00	138,000.00	371,000.00	Machine hours	50500	505000	555500
maintenance	219,000.00	231,000.00	450,000.00	Maintenance hours'	2250	9000	11250
Activity cost per driver		Cost per driver
Set up costs per production run	$2392500/250hours	9570
Inspection costs per inspection hour	$350000/5000hours	70
Power per machine hour	$371000/555500hours	0.67
maintenance per maintenance hour	$450000/11250	40
Overhead costs	Scientific	Business
Set up costs (cost per driver*cost driver)	$9570 per prod run * 100 prod run	$9570 per prod run * 150 prod run
	$957,000	$ 1,435,500.00
Inspection Cost	$70per inspection hour*2000'	$70per inspection hour*3000
	$                                       140,000.00	$    210,000.00
Power	$0.67 per machine hour*50500	$0.67 per machine hour*505000
	$                                         33,835.00	$    338,350.00
Maintenance	$40 per maintenance hour*2250 hours	$40 per maintenance hour*9000 hours
	$                                         90,000.00	$    360,000.00
Total overhead costs	$1,220,835.00	$ 2,343,850.00
Number of units	75000	750000
Overhead cost per unit	$16.28 per unit	$3.13 per unit