Question

Vaughn is an electronics components manufacturer. Information about the company's two products follows: Units produced Direct labor hours required for production Units per batch Shipping weight per unit AM-2 FM-9 18,000 3,120 16,000 28,000 4,000 80 0.50 lbs. 4 lbs. The company incurs $1,312,438 in overhead per year and has traditionally applied overhead on the basis of direct labor hours. (i) How much overhead will be allocated to each product using the traditional direct labor hours allocation base? (Round per unit rates to 2 decimal places, e.g. 3.54 and final answers to 0 decimal places, e.g. 45,000.) AM-2 FM-9 Overhead allocated to each product $ (ii) What overhead cost per unit will be allocated to each product? (Round answers to 2 decimal places, e.g. 15.25.) AM-2 FM-9 Overhead cost per unit $ Assume that Vaughn has identified three activity cost pools. Pool Cost Cost Driver Assembly $1,012,000 Direct labor hours Setup 115,710 Number of setups (1 per batch) Packaging 184,728 Weight (i) Given these activity pools and cost drivers, how much overhead should be allocated to each product? (Round per unit rates to 2 decimal places, e.g. 3.54 and final answers to 0 decimal places, e.g. 45,000.) AM-2 FM-9 Total allocated overhead $ (ii) What overhead cost per unit will be allocated to each product? (Round answers to 2 decimal places, e.g. 15.25.) AM-2 FM-9 Overhead cost per unit $ Click if you would like to Show Work for this question: Open Show Work

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer Part 1) Firstly we have to calculate the overhead rate = Overheads / direct labour hours = 1312438/(16000+28000) = $ 29.83 overhead allocated to each product AM-2 477250 (16000*29.83) FM-9 835188 (28000*29.83) Thus the final answer FM-9 AM-2 477250 overhead allocated to each product 835188 Formula for overhead allocated = overhead rate * direct labour hours

A B H |AM-2 18 Part 2) 19 20 overhead allocated to each product 21 No. of units 22 Overhead cost per unit 4 FM-9 77250 18000 26.51 835188 31201 267.69 24 Thus the final answer AM-2 26.51 FM-9 267.69 26 Overhead cost per unit 28 Part 3) 29 Cost 30 Pool 31 Assembly 32 Set up 1012000 115710 Statement of Allocated Overheads Overhead cost | Activity of FM Overhead cost Total activity Activity Rate Activity of AM-2 of AM-2 of FM-9 44000 23L 16000 1 368000 28000 644000 43.5 2660 11970 103740 (18000/4000) (3120/80) 21480 8.6 9000 77400 12480 107328 (18000*.5) (3120*4) 457370 855068 4.5 39 34 Packaging 184728 36 Total 21

38 Overhead cost allocation under ABC Costing 39 Thus the final answer AM-2 41 overhead allocated to each product 457370 40 FM-9 855068 2 43 Part 4) 44 1 45 46 overhead allocated to each product 47 No. of units 48 Overhead cost per unit AM-2 457370 18000 25.41 FM-9 855068 3120 274.06 49 50 51 Thus the final answer AM-2 FM-9 53 Overhead cost per unit 25.41 274.06 54