Question

P5-4A. Stage Two ABC for Manufacturing Merlot Company has determined its activity cost pools and cost drivers to be the following:

Cost Pools

Setup……………………………………………………………………………………………………………………$59,500

Materials handling……………………………………………………………………………………………….$16,000

Machine operation……………………………………………………………………………………………….$300,000

Packing…………………………………………………………………………………………………………………$60,000

Total indirect Manufacturing costs………………………………………………………………………..$435,500

Cost drivers

Setups……………………………………………………………………………………………………………………..$350

Materials moves………………………………………………………………………………………………………$640

Machine hours…………………………………………………………………………………………………………$20,000

Packing orders…………………………………………………………………………………………………………$1,000

One product made by Merlot, metal casements, used the following activities during the period to produce 500 unit:

Setups……………………………………………………………………………………………………………………..20

Materials moves……………………………………………………………………………………………………….80

Machine hours…………………………………………………………………………………………………………1,900

Packing orders………………………………………………………………………………………………………….150

Required

1. Calculate the cost per unit of activity for each activity cost pool for Merlot Company
2. Calculate the manufacturing overhead cost per metal casement manufactured during the period.

E B D A G H K M N P 1 Stage Two ABc for Manufacturing Meriot Company has determined its activity cost pools and 2 cost drivers to be the following: 3 4 Cost Pols Setup Materials handling 59,500 5 16,000 6 7 Machine operation Packing Total indirect manufacturing costs 300,000 60,000 8 9 S 435.500 10 11 Cost drivers 350 Setups 12 Materlals moves 640 13 20,000 Machine hours 14 1,000 Packing ordiers 15 16 17 One product made by Merlat, metal casements, used the fallewing activities during the pericd to produce 18 500 units: 19 20 Setups Materlals moves 20 1.900 Machine hours 21 150 Packing orders 22 23 24 Required Calculate the cost per unit of activity for each activity cost pool for Merlot Company. Calculate the manufacturing overhead cost per metal casernent mranufactured during the period. 25 a. 26 b. 27 28 Cost per unit of activity Cost driver Cost Overhead pool Setups 29 a 30 Materlals moves 31 Machine hours 32 33 Packing orders 14 35 Overhead costs of producing metal casements: Overhead 36 b. 63AM PS 4A PS-5A a E1 O Iype nere to search

b.	Overhead costs of producing metal casements:
			Activity level		Overhead cost per unit		Total cost
	Setups
	Materials moves
	Machine hours
	Packing orders
	Total cost per batch
	Number of units per batch
	Cost per unit

Answer 1

Activity based costing system is a process in which overhead costs are accumulated based on the activity done and then those are allocated product based on actual consumption of those activities by the product.

Overhead Pool Cost Cost Driver (A) Setups Materials moves Machine hours Packing orders $59,500 $16,000 $3,00,000 $60,000 $4,35,500 (B) 350 640 20000 1000 Cost per unit of activity (A)/(B) $170 $25 $15 $60 Total Cost Overhead costs of producing metal casements: Oberhead Activity Level cost per unit (B) Setups $170 Materials moves 80 $25 Machine hours 1900 $15 Packing orders 150 $60 Total cost per batch Number of units per batch Cost per unit ($42900/500) (A) x (B) $3,400 $2,000 $28,500 $9,000 $42,900 500 $85.80