Question

ANOMAN COMPANY has 5 activity cost pools and two products (a budget vacuum & a deluxe vacuum). Information is presented below cost driver by product Activity cost pool Cost driver Est. Overhead Budget Deluxe 400 Ordering & receiving Machine set up Machining Assembly Inspection Orders Set up Machine hours Parts Inspection 130,000 297,000 1,000,000 1,600,000 300,000 600 500 150,000 1,200,000 550 400 100,000 800,000 450 Instructions: Compute the overhead cost per unit for each product. Production is 700,000 units of budget and 200,000 units of deluxe. Round your answer to the nearest cent

Answer 1

Solution

	Budget	Deluxe
Overhead cost per unit	$ 2.81	$                    6.80

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Ordering % receiving	Number of order	$ 130,000	1000	$          130.00	Per order
Machine set up	Number of setup	$ 297,000	900	$          330.00	Per setup
Machining	Number of machine hour	$ 1,000,000	250000	$               4.00	Per machine hour
Assembly	Number of parts	$ 1,600,000	2000000	$               0.80	Per parts
Inspection	Number of Inspection	$ 300,000	1000	$          300.00	Per Inspection

.

Cost assigned to Budget
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Ordering % receiving	$        130.00	600.00	$ 78,000
Machine set up	$        330.00	500.00	$ 165,000
Machining	$             4.00	150,000.00	$ 600,000
Assembly	$             0.80	1,200,000.00	$ 960,000
Inspection	$        300.00	550.00	$ 165000.00,0
Total Overheads assigned			$       1,968,000.00
Production			700,000.00
Overhead cost per unit			$ 2.81

.

Cost assigned to Delux
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Ordering % receiving	$        130.00	400	$ 52,000
Machine set up	$        330.00	400	$ 132,000
Machining	$             4.00	100000	$ 400,000
Assembly	$             0.80	800000	$ 640,000
Inspection	$        300.00	450	$ 135,000
Total Overheads assigned			$       1,359,000.00
Production			200,000.00
Overhead cost per unit			$                 6.80