Question

3. Daisy Company produces two products, T and U. The indirect labor costs include the following two items: 20 points) Plant Supervision 5600,000 Setup labor indirect) 300.000 Total indirect labor $900,000 The following activity-base usage and unit production information is available for the two products: Number of Direct Labor Setups Hours Units Product T 100 25.000 1.000 Product 200 25.000 1.000 Total 400 50,000 3,000 (a) Determine the single plant-wide factory overhead rate, using direct labor hours as the activity hase 06) Determine the factory overhead cost per unit for Products T and U, using the single plant-wide factory overhead rate. (e) Determine the activity rate for plant supervision and setup labor, assuming that the activity base for supervision is direct labor hours and the activity base for setup is number of setups (d) Determine the factory overhead cost per unit for Products T and U, using activity based costing (c)Why is the factory overhead cost per unit different for the two products under the two methods 4. The Southwest Leather Company manufactures leather handbags (HI) and moccasins (M). The company has been using the factory overhead rate method but has decided to evaluate the activity based costing to allocate factory overhead. The factory overhead estimated per unit together with direct materials and direct labor will help determine selling prices. (10 points) Total Budgeted factory overhead cost-$360,000 Products Cutting Sewing Set-Ups oc Purchase Inspections Orders Handbags 60,000 dlh 60,000 dlh 500 200 100 Moccasins 20,000 dlh80,000 dth 300 800 300 Total 100,000 DIE 140,000 dth 800 set-ups 1.000 inspect 100 PO's Budget S40.000 S210.000 $80,000 $20,000 $10,000 Calculate the amount of factory overhead to be allocated to each unit using activity based costing. The factory plans to produce 60,000 handbags, and 40,000 moccasins

Answer 1

Question 3

Part A

Single Plantwide Overhead Rate = Total Estimated Indirect Costs / Total Estimated Direct Labour Hours

Total Estimated Indirect Costs = $ 900,000

Total Estimated Direct Labour Hours = 50,000

Single Plantwide Overhead Rate = 900,000 / 50,000

Single Plantwide Overhead Rate = $ 18 per Hour

Part B

For Product T

Indirect Costs = 25,000 Labour Hours * $ 18 per Hour = $ 450,000

Indirect Factory Overhead Cost per Unit = 450,000 / 1,000 Units = $ 450

For Product U

Indirect Costs = 25,000 Labour Hours * $ 18 per Hour = $ 450,000

Indirect Factory Overhead Cost per Unit = 450,000 / 1,000 Units = $ 450

Part C

	A	B	C = A/B
Particular	Estimated Activity Costs	Activity Level	Activity Allocation Rate
Plant Supervision	600,000	50,000	12	Per Direct Labour Hour
Setup Labour	300,000	400	750	Per Setup
Total	900,000

Part D

Factory Overhead Cost for Activity Based Costing

Product T

Plant Supervision Costs = 25,000 Labour Hours * $ 12 per Hour = $ 300,000

Set-up Labour = 100 Setups * $ 750 Per Setup = 75,000

Total Factory Overhead Cost = 300,000 + 75,000

Total Factory Overhead Cost = $ 375,000

Factory Overhead Cost per Unit = 375,000 / 1,000 Units

Factory Overhead Cost per Unit = $ 375

Product U

Plant Supervision Costs = 25,000 Labour Hours * $ 12 per Hour = $ 300,000

Set-up Labour = 300 Setups * $ 750 Per Setup = $ 225,000

Total Factory Overhead Cost = 300,000 + 225,000

Total Factory Overhead Cost = $ 525,000

Factory Overhead Cost per Unit = 525,000 / 1,000 Units

Factory Overhead Cost per Unit = $ 525

Part E

The Factory Overhead Cost per Unit in both the methods is different becuase of the fact that the single Plantwide Overhead Rate allocates costs on the basis of single cost driver whereas Activity Based Costing allocates Indirect Costs by taking into account all the activities associated with the product and the level of resource consumed by each product so they results in giving more realistic and accurate information about cost Allocation.

Question 4

	A	B	C = A/B
Particulars	Estimated Activity Costs	Activity Level	Activity Allocation Rate
Cutting	40,000	100,000	0.40	Per DLH
Sewing	210,000	140,000	1.50	Per DLH
Setup	80,000	800	100	Per Setup
QC Inspection	20,000	1,000	20	Per Inspection
Purchase Order	10,000	400	25	Per Po
Total	360,000

For Handbags

Particulars	Activity Level	Activity Allocation Rate	Total Overhead Costs
Cutting	60,000	0.40	24,000
Sewing	60,000	1.50	90,000
Setup	500	100	50,000
QC Inspection	200	20	4,000
Purchase Order	100	25	2,500
Total Overhead Cost			170,500
÷ Number of Units			60,000
Factory Overhead Cost per Unit			2.84

For Moccasins

Particulars	Activity Level	Activity Allocation Rate	Total Overhead Costs
Cutting	40,000	0.40	16,000
Sewing	80,000	1.50	120,000
Setup	300	100	30,000
QC Inspection	800	20	16,000
Purchase Orders	300	25	7,500
Total Overhead			189,500
÷ Number of Units			40,000
Factory Overhead Cost per Unit			4.74

Notes

Total Overhead Cost = Activity Allocation Rate * Activity Level