Question

Comprehensive In Class ABC Problem

A manufacturer makes two types of snowmobiles. Basic and Deluxe, and reports the following data to be used in applying activity-based costing. The company budgets production of 6,000 Basic snowmobiles and 2,000 Deluxe snowmobiles.

Activity Pool                       Activity Cost Driver          Cost assigned    Basic                      Deluxe

Machine setup                  Number of setups            $150,000              200 batches       300 batches

Materials handling           Number of parts               $250,000              10 per unit          20 per unit

Machine depreciation    Machine Hours                  $720,000              1 MH per unit    1.5 MH per unit

Total Overhead                                                                $1,120,000

1. Compute overhead activity rates for each activity cost pool using ABC
2. Compute the total amount of overhead cost to be allocated to each product line using ABC
3. Compute the overhead cost per unit for each product line using ABC

Answer 1

Solution

	Activity rate
Machine setup	$       300.00	Per setup
Material handling	$            2.50	Per part
Machine depreciation	$          80.00	Per MH

.

	Basic	Deluxe
Overhead allocated	$          690,000.00	$       430,000.00

.

	Basic	Deluxe
Overhead cost per unit	$ 115.00	$               215.00

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setup	Number of setup	$ 150,000	500	$          300.00	Per setup
Material handling	Number of part	$ 250,000	100000	$               2.50	Per part
Machine depreciation	Number of MH	$ 720,000	9000	$             80.00	Per MH

.

Cost assigned to Basic
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        300.00	200.00	$ 60,000.00
Material handling	$             2.50	60,000.00	$ 150000.00
Machine depreciation	$           80.00	6,000.00	$ 480000.00
Total Overheads assigned			$ 690000.00
Production			6,000.00
Overhead cost per unit			$ 115.00

.

Cost assigned to Deluxe
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        300.00	300	$ 90,000
Material handling	$             2.50	40000	$ 100,000
Machine depreciation	$           80.00	3000	$ 240,000
Total Overheads assigned			$           430,000.00
Production			2,000.00
Overhead cost per unit			$              215.00