Question

This question is based on Example #2 in the Chapter 4 Example packet. This example uses ABC to cost two different models of TV's. Assume all the data is the same as the problem in the packet, with the exception of the following numbers for the activity allocation base for all the Medium TV's (3000 TV's) produced. # of material handling orders # of machine hours # of packaging hours 275 20,825 4,751 Assume that the activity based overhead rates do not change from what was calculated in the problem ($300 per material order handled, $14 per machine hour, and $9 per packaging hour) What is the total cost of producing 1 medium TV, including direct materials, direct labor and manufacturing overhead? Hint: remember that the $660,000 for direct materials and $216,000 for direct labor were for all 3000 medium TV's produced. Likewise, the overhead numbers that you will arrive at using the new activity allocation base numbers are for 3000 TV's. So don't forget to divide your final answer by 3000 to arrive at the cost of 1 TV. Round your final answer to the nearest whole number, and don't enter dollar signs.

Answer 1

Answer with working notes is given below

Cost per Medium TV 431 Activity rate Activities Total Cost Material handling $300 275 $82,500 Machine processing $14 20,825 $291,550 Packaging 4,751 $42,759 Total Manufacturing Overhead cost allocated $416,809 Cost per Medium TV Direct Material Direct Labor Manufacturing overhead Total Cost Output Cost per Medium TV $660,000 $216,000 $416,809 As per above working $1,292,809 3,000 $430.94 1 Direct Labor hour rate Total Overheads Direct labor hour rate $800,000 25,000 $32.00 Medium TV Large TV labor hours 9,000 16,000 Total Overheads applied $288,000.00 $512,000.00 Manufacturing cost-Traditional Medium TV Direct Material $660,000 Direct Labor $216,000 Overhead applied $288,000 Manufacturing cost $1,164,000 Total Output 3,000 Cost per TV | $388.00 Large TV $1,240,000 $384,000 $512,000 $2,136,000 4,000 $534.00 Activity rate Cost Pool $150,000 $560,000 Material handling Machine processing Packaging Total Total Activities 500 40,000 10,000 Activity rate $300.00 per material order handled $14.00 per machine hour $9.00 per packaging hour $800,000 Material handling Machine processing Packaging Total Activities Cost allocated Activity rate Medium TV Large TV Medium TV Large TV $300.00 300 2001 $90,000 $60,000 $14.00 20,000 20,000 $280,000 $280,000 $9.00 4,000 6,000 $36,000 $54,000 $406,000 $394,000 Manufacturing cost- ABC Method Medium TV Direct Material $660,000 Direct Labor $216,000 Overhead applied $406,000 Manufacturing cost $1,282,000 Total Output 3,000 Cost per TV $427.33 Large TV $1,240,000 $384,000 $394,000 As per working above $2,018,000 4,000 $504.50 3 Comparison Medium TV $388.00 $427.33 -$39.33 Large TV $534.00 $504.50 Traditional method ABC method Under-Costed Over-Costed $29.50 Medium TV is under-costed as per Traditional method of direct labor hour allocation Large TV is over-costed as per Traditional method of direct labor hour allocation