Question

Duration-Based Costing

Gee Manufacturing produces two models of camshafts used in the production of automobile engines: Regular and High Performance. Gee currently uses an ABC system to assign costs to the two products. For the coming year, the company has the following overhead activities, costs, and activity drivers:

Activity	Expected Cost		Activity Driver	Activity Capacity
Setups	$214,612		Setup hours	10,000
Machining	$420,000		Machine hours	20,000
Moving	$112,500		Move hours	5,000
Total OH	$747,112

At practical capacity, the expected activity demands for each product are as follows:

	Regular Performance Model		High Performance Model
Units completed	30,000		8,000
Setup hours	8,000		2,000
Machine hours	6,000		14,000
Moving hours	1,000		4,000

The production cycle time for the regular performance camshaft is 0.50 (hours per unit) and that of the high performance camshaft is 2.5 (hours per unit).

Required:

1. Calculate the consumption ratios for each activity. Use these consumption ratios to assign the total overhead to each camshaft model and then calculate the overhead cost per unit for each model (round unit cost to two decimal places).

	Setups		Machining		Moving
Reg. Perf. Model
High Perf. Model

Unit overhead cost:

Reg. Perf. Model	$
High Perf. Model	$

2. Calculate the total and per unit overhead assigned to each model using DBC (assume you only know cycle time, total overhead costs, and units at practical capacity). Round the overhead rate to four decimal places.

Total overhead rate $

Total overhead:

Reg. Perf. Model	$
High Perf. Model	$

Feedback

Answer 1

Gee Manufacturing Requirment 1 Consumption Ratio Reg. Perf. Model High Perf. Model Setups 0.8 0.2 Machining Moving 0.3 0.2 0.8 0.7 Setups = Expected Activity / Activity Capacity = 8000 / 10000 = 0.8; 2000 / 10000 = 0.2 Machining = Expected Activity / Activity Capacity = 6000 / 20000 hours = 0.3; 14000 / 20000 = 0.7 Moving = Expected Activity / Activity Capacity = 1000 / 5000 hours = 0.2; 4000 / 5000 = 0.8 Unit overhead cost: Reg. Perf. Model High Perf. Model Setups 171690 42922 214612 Machining Moving 126000 22500 294000 90000 420000 112500 Totals 320190 426922 747112 Requirment 2 Reg. Perf. Model High Perf. Model Overhead Cost 320190 426922 Units 30000 8000 Cost per unit 10.67 53.37