Question

Drilling Company uses activity-based costing and provides this information: Driver Rate $ 0.5 Manufacturing Activity Materials handling Machinery Assembly Inspection Cost Driver Number of parts Number of machine hours Number of parts Number of finished units 50 2.80 29 Drilling has just completed 79 units of a component for a customer. Each unit required 99 parts and 2.95 machine hours. The prime cost is $1,290 per finished unit. All other manufacturing costs are classified as manufacturing overhead. Required: 1. Compute the total manufacturing costs and the unit costs of the 79 units just completed using ABC costing. 2. In addition to the manufacturing costs, the firm has determined that the total cost of upstream activities, including research and development and product design, is $179 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service, is $299 per unit. Compute the full product cost per unit, including upstream, manufacturing, and downstream activities. Also compute the relative proportion of each main cost category.

Answer 1

Solution 1. Computation of Total Manufacturing cost (79 units) and per unit cost Material Handling (79 units x 99 parts x $ 0.5) $ 3,910.50 Machinery (79 units x 2.95 hrs x $ 50) $ 11,652.50 Assembly (79 units x 99 parts x $ 2.8) $21,898.80 Inspection (79 units x $ 29) $ 2,291.00 Total Cost of 79 units (A) $39,752.80 No of units (B) 79 units Per unit cost (A/B) $ 503.20 (79 Solution 2. Computation of product Upstram cost Downstream cost Allocated cost as per ABC costing $ $ $ $ 179.00 299.00 503.20 981.20

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