Question

QUESTION FOUR QUESTION FOUR (continued) Jinko Pty Ltd produces circuit boards used in alarm systems. They are in the process of determining the costs and selling prices of three of their main circuit boards: Advanced, Boosted and Customised, for the month of September. It has been established that Jinko will sell 3,000 units of Advanced, 1,000 units of Boosted and 500 units of Customised. Planned activity for cost driver Cost Driver Budgeted Overhead Costs Machine related overhead Machine setup Machine insertion Machine soldering The per-unit requirements for the three circuit boards are as listed: $176,400 $300,350 $83,250 $560,000 Number of setups Number of insertions Number of parts 17,000 1,320,000 207,500 Direct materials (grams) Direct labour (hours) Machine time (hours) Advanced Boosted Customised 50 75 100 2 1 0.5 1 2 4 Variable overhead General supplies Procurement Hazardous waste disposal Overheads are currently applied from three cost pools: Labour related, machine related and variable overhead. The costs of these costs pools and their relevant cost drivers are as follows: $40,000 $75,000 $65,000 $180,000 Machine hours Number of parts Grams of waste 7,000 207,500 60,000 Cost pools Labour related Machine related Variable overhead Total costs $435,000 $560,000 $180,000 Cost driver Direct labour hours Machine hours Number of units Required per Unit Parts Inspections Machine setups Machine insertions Hazardous waste Orders Machine hours The average cost of direct materials is $600 per kilogram and the wage rate is $80 per hour. Advanced 25 1 2 120 10 grams 0.1 1 Boosted 70 2 5 480 Customised 125 6 12 960 30 grams 0.1 4 15 grams A 20% mark-up from product cost is used to determine the selling price of all products. 0.02 2 Jinko is considering the use of Activity Based Costing and has gathered the following information: REQUIRED: Planned activity for cost driver Cost Driver A. Budgeted Overhead Costs Labour related overhead Production scheduling Inspection Packaging and shipping Determine the per-unit cost of each product using Jinko's original method of costing and establish the selling price for each product from the product costs (round to the nearest dollar). $94,500 $174,000 $166,500 $435,000 Number of orders Number of inspections Number of units 370 8,000 4,500 B. Determine the per-unit cost of each product using Activity Based Costing and determine the selling price for each product under Activity Based Costing (round to the nearest dollar).

Answer 1

A. Original method of costing:

Total direct labor hours = 3,000 x 2 + 1,000 x 1 + 500 x 0.5 = 7,250

Activity rate for labor related overhead costs = $ 435,000 / 7,250 direct labor hours = $ 60 per diect labor hour.

Total machine hours = 3,000 x 1 + 1,000 x 2 + 500 x 4 = 7,000

Activity ratte for machine related overhead costs = $560,000 / 7,000 machine hours = $ 80 per machine hour

	Advanced	Boosted	Customized
Direct materials	$ 30	$ 45	$ 60
Direct labor	160	80	40
Overhead
Labor related	120	60	30
Machine related	80	160	320
Variable overhead	40	40	40
Per-unit cost	430	385	490
Mark-up	86	77	98
Selling price per unit	$ 516	$ 462	$ 588

B. Activity Based Costing:

	Advanced	Boosted	Customized
Direct materials	$ 30	$ 45	$ 60
Direct labor	160	80	40
Overhead	167.96	327.76	686.69
Per-unit cost	357.96	452.76	786.69
Mark-up	71.59	90.55	157.34
Selling price per unit	$ 432.55	$ 543.31	$ 944.03

Cost Pool	Estimated Overhead	Volume of Cost Driver	Activity Rate	Advanced	Boosted	Customized
				Volume of Activity Consumed per Unit	Assignment of Overhead Cost per Unit
Machine Setup	$ 176,400	17,000 setups	$ 10.38 per set up	2	$ 20.76	$ 51.88	$ 124.52
Machine Insertion	300,350	1,320,000 insertions	0.23 per insertion	120	27.30	109.22	218.44
Machine Soldering	83,250	207,500 parts	$ 0.40 per part	25	10.03	28.08	50.15
Production Scheduling	94,500	370 orders	$ 255.41 per order	0.1	25.54	5.11	25.54
Inspection	174,000	8,000 inspections	21.75 pe inspection	1	21.75	43.50	130.50
Packaging and Shipping	166,500	4,500 units	37 per unit	1	37	37	37
General supplies	40,000	7,000 machine hours	5.71 per machine hour	1	5.71	11.42	22.86
Procurement	75,000	207,500 parts	0.36 per part	25	9.04	25.30	45.18
Hazardous Waste Disposal	65,000	60,000 grams	1.08 per gram	10 grams	10.83	16.25	32.50
Total	$1,175,000				$167.96	$327.76	$ 686.69

A