Question

Subscriptions O Noah Questo 2 Not complete Marked out of 51.00 Flat question Activity-Based Costing Slack Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools: Fabrication Department Finishing Department Cost Driver Maintenance 520.000 $10.000 Machine hours Material handling 30,000 15.000 Material moves Machine setup 70,000 5.000 Machine setups Inspections 25.000 Inspection hours $120,000 $55,000 The following activity predictions were also made for the year Fabrication Department Finishing Department Machine hours 10000 5.000 Material moves 3.000 1.50 Machine setups 700 50 Inspection hours 1.000 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president. Charles Slack, is trying to evaluate the company's product mix strategy regarding two of its five product models, zx300 and SLS00. The company has been using a company wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models: 2X300 SL500 Direct materials cost $12,000 $18.000 Direct laborou 55.000 4.000 Machine hours (Fabrication 700 Machine hours Finishing 200 30 Material moves Machines 100 50 9 5 30 Inspection hours 60

Answer 1

Requirement a:

(i) Overhead rate

Plantwide overhead rate = Total Overhead cost / Total machine hours

Total Overhead cost = $120,000 + $55,000 = $175,000

Total machine hours = 10,000 + 5,000 = 15,000

Plantwide overhead rate = $175,000 / 15,000 machine hours = $11.67 per machine hour.

(ii) Product costs per unit

Particulars	ZX300	SL500
Direct Materials	$12,000	$18,000
Direct Labor	$5,000	$4,000
Manufacturing Overhead	$8,169	$9,336
Total cost per batch	$25,169	$31,336
Number of Units per batch	100	100
Cost per unit	$251.69	$313.36

Manufacturing overheads

ZX300 = (500 + 200) * $11.67 = $8,169

SL500 = (700 + 100) * $11.67 = $9,336

Requirement b:

(i) Departmental overhead rates

Departmental overhead rate = Departmental overhead cost / Departmental machine hours

Fabrication Department

Departmental overhead rate = $120,000 / 10,000 machine hours = $12.00 per machine hour

Finishing Department

Departmental overhead rate = $55,000 / 5,000 machine hours = $11.00 per machine hour

(ii) Product costs per unit

Particulars	ZX300	SL500
Direct Materials	$12,000	$18,000
Direct Labor	$5,000	$4,000
Manufacturing Overhead	$8,200	$9,500
Total cost per batch	$25,200	$31,500
Number of Units per batch	100	100
Cost per unit	$252.00	$315.00

Manufacturing overheads

ZX300 = (500 * $12.00) + (200 * $11.00) = $8,200

SL500 = (700 * $12.00) + (100 * $11.00) = $9,500

Requirement c:

(i) Overhead rates using activity based costing

Activity based overhead rate	$
Maintenance ($20,000 + $10,000) / (10,000 + 5,000)	$2.00 per machine hour
Materials handling ($30,000 + $15,000) / (3,000 + 1,500)	$10.00 per material move
Machine setup ($70,000 + $5,000) / (700 + 50)	$100.00 per setup
Inspection activities ($0 + $25,000) / (0 + 1,000)	$25.00 per inspection

(ii) Product costs per unit

Particulars	ZX300	SL500
Direct Materials	$12,000	$18,000
Direct Labor	$5,000	$4,000
Manufacturing Overhead
Maintenance activity (700 * $2.00) (800 * $2.00)	$1,400	$1,600
Materials handling activity (30 * $10.00) (50 * $10.00)	$300	$500
Machine setups activity (5 * $100.00) (9 * $100.00)	$500	$900
Inspection activity (30 * $25.00) (60 * $25.00)	$750	$1,500
Total cost per batch	$19,950	$26,500
Number of Units per batch	100	100
Cost per unit	$199.50	$265.00

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