Question

Product-Costing Accuracy, Plantwide and Departmental Rates, ABC

Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products: PLEASE SOLVE WRONG ONES

Product Costing Accuracy, Plantwide and Departmental Rates, ABC Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products: Product-Related Data Units produced per year Prime costs Direct labor hours Machine hours Scientific Business 77,000 770,000 $233,000 $2,330,000 100,000 1,000,000 48,300 483,000 100 150 2,000 3,000 2,250 9,000 Department Data Department 1 Department 2 Production runs Inspection hours Maintenance hours Direct labor hours: Scientific calculator Business calculator Total Machine hours: Scientific calculator Business calculator 77,800 130,000 207,800 22,200 870.000 892,200 22,900 384,720 407,620 25,400 98,280 123,680 Total

Answer 1

2.

Compute overhead cost per unit:

Particulars	Scientific	Business
Machine hours (A)	22,900	384,720
Overhead rate per machine hour (B) (W.N)	$2.06	$2.06
Manufacturing overhead [C = A × B]	$47,174	$792,523
Direct labor (D)	22,200	870,000
Overhead rate per direct labor hour (E) (W.N)	$0.91	$0.91
Manufacturing overhead cost [F = D × E]	$20,202	$791,700
Total manufacturing cost [C + F]	$67,376	$1,584,223
Unit produced	77,000	770,000
Overhead cost per unit	$0.88	$2.06

Working Note:

	Scientific
Total overhead	$838,500
÷
Total labor hours	$407,620
Overhead rate per machine hours	2.06
	Business
Total overhead	$808,500
÷
Total machine hours	$892,200
Overhead rate per direct labor hours	0.91

_______________________________________________________________

(b)

Overhead cost per unit direct labor hours for Department 1 and amchine hours for Department 2:

Particulars	Scientific	Business
Direct labor (A)	77,800	130,000
Overhead rate per direct labor hour (B) (W.N)	$4.04	$4.04
Manufacturing overhead cost [C = A × B]	$314,312	$525,200
Machine hours (D)	25,400	98,280
Overhead rate per machine hours (E) (W.N)	$6.54	$6.54
Manufacturing overhead cost [F = D × E]	$166,116	$642,751
Total manufacturing cost [C + F]	$480,428	$1,167,951
Unit produced	77,000	770,000
Overhead cost per unit	$6.24	$1.52

Working notes as follows:

	Scientific
Total overhead	$838,500
÷
Total labor hours	$207,800
Overhead rate per direct labor hours	4.04
	Business
Total overhead	$808,500
÷
Total machine hours	$123,680
Overhead rate per machine hours	6.54

_________________________________________________________________________

3.

Compute the overhead cost per unit for each product using activity-based costing.

Cost	Basis of Allocation	Activity rate             (Total cost/Total basis)	Scientific	Business
Setup costs ($451000/250)	Production runs	1804	(1804*100 = $180400)	(1804*150 = $270,600)
Inspection costs ($320000/5000)	Inspection hours	64	(64*2000 = $128000)	(64*3000 = $192,000)
Power ($426000/531300)	Machine hours	0.81	(0.81*48,300 = $39123)	(0.81*483,000 = $391,230)
Maintenance ($450000/11250)	Maintenance hours	40	(40*2250 = $90,000)	(40*9000 = $360000)
Total overhead			$437,523	$1,213,830
Unit produced			77000	770000
Overhead cost per unit			$5.68	$1.58