Question

Performance Products Corporation makes two products, Titanium Rims and Posts. Data regarding the two products is provided in the following table: Direct Labor Hours per Unit Annual Production Rims 0.40 20,000 units Posts 0.20 80,000 units Additional information about the company follows: a. Rims require $17.00 in direct materials per unit, and Posts require $10.00. b. The direct labor wage rate is $16.00 per hour. c. Rims are more complex to manufacture than Posts, and they require special equipment. d. The Activity Based Costing (ABC) System has the following activity cost pools: Activity Cost Pool Activity Measure Estimated Overhead Cost Rims Posts Total Activity for Rims and Posts Machine Setups Number of Machine Setups $21,600 100 80 180 Special Processing Machine Hours $180,000 4,000 0 4,000 General Factory Direct Labor Hours $288,000 8,000 16,000 24,000 Required - Use the tables on the following page to determine the following required components: In order to receive full credit please show all work!! 1. Compute the activity rate for each activity pool. 2. Determine the amount of manufacturing overhead assigned to each product (Rims and Posts) for each activity cost pool. 3. Determine the unit product cost of each product (Rims and Posts) according to the ABC system.

Answer 1

Answer 1
Activity Cost Pool	Estimated Overhead Cost E	Expected Activity A	Activity Rate E/A
Machine Setups	$21,600	180	$120
Special Processing	180000	4000	$45
General Factory	288000	24000	$12
	$489,600
Answer 2
Rims:
Activity Cost Pool	Activity Rate	Activity	ABC Cost
Machine Setups	$120	100	$12,000
Special Processing	$45	4000	$180,000
General Factory	$12	8000	$96,000
Total Factory Overhead			$288,000
Posts:
Activity Cost Pool	Activity Rate	Activity	ABC Cost
Machine Setups	$120	80	$9,600
Special Processing	$45	0	$0
General Factory	$12	16000	$192,000
Total Factory Overhead			$201,600
Answer
	Rims	Posts
Direct materials:	340000	800000
	(17*20000)	(10*80000)
Direct labor:	128000	256000
	(16*.4*20000)	(16*.2*80000)
Manufacturing Overhead:	$288,000	$201,600
Total cost T	$756,000	$1,257,600
No. of units N	20000	80000
Unit cost   T/N	$37.80	$15.72
Part II:-
Implementation of Abc
Step 1 First we need to identify activities
Step 2 Than analyse the activities identified
Step 3 Than cost is assigned to the activities identified
Step 4 Than there is calcualtion of activity rate
Step 5 Than cost is assigned to the cost objects based on activity rate
Limitation of ABC:-
1) Cost of implementation of ABC is high
2) For using ABC method more time is involved
3)The input data is collected from various department and if there is
flaw in this data than the outcome can be incorrect