Question

Coronado Company produces two products: MB-R and MB-X. Currently, Coronado allocates overhead based on direct labour hours. Overhead is estimated at $436,800. The cost accountant realizes that there are some differences in how resources are being used in producing these two components and is considering the use of ABC to allocate overhead. She determines that overhead is caused by testing and inspections, $112,000; machine setup, $84,000; machine stamping, $200,000; and plant maintenance, $40,800. Coronado estimates the following activities related to the overhead costs: Activity Testing and inspections Machine setup Machine stamping Plant maintenance Cost Driver Number of testing and inspections Number of setups Number of machine hours Direct labour hours MB-R 400 140 25,000 1,200 MB-X 400 60 15,000 2,200 Use ABC cost hierarchy to classify each activity. Cost Driver Activity Testing and inspections Machine setup Machine stamping Plant maintenance

Answer 1

Classification of each Activity: Activity Testing & Inspections Machine srup Machine stamping Plant Maintenance Cost Drives No. of Testing & Inspections Number of setups Number of Machine hows Direct lobor Lowes Armount h_Overhead assigned MB-R Tomat overhead assicost Die tatok how MB-R Toral Dieet taboe hours 436800 x1200 $ 218400 2400 MB-X _ 436800 x 200 2$ 218 100 200 Overhead Assigned using_ABC MB-R on MB-XOH Testing of Amspection 856000 556.000 Tokelamsbechiom (osty momsbection J113000x700) Tobal mo. f qmsbechien $2000x4607 f the produer 800 Machine Setup [358800) 525200 Tobal Machine fub cast No-sekub 7 84000 74000.a. Xhe (84000x180) (84000x60) Total No of setup broducts Machine Stamping S 125000 325000 Torel cost_ * stomping notes Torel No of stamping of the product Plant Maintenance $20 400 320, 400 Total Maintenance cost No. X Direct (408000 140800x1200) Torad No.4 Direct Labor heart Labor hout of product (200000.x2500) 1000 of 70000 25000) (2000x1 sao 2400 2100 Kao the

ABC Page : MB ROM MB-XOH Testing A mspection 857000 856,000 Machine Setup 858,800 $ 25,200 Machine Stamping $ 125000 $75,000 Plant Maintenance s 20400 8 20.900 Toral Cost assigned $40.400 $196,600 $260200 Boditioner Total cost assigned $218400 $ 218400 So, MB-X is Overcosted using Traditional cost Method.

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