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 Maintenance. ... Materials handling Machine setups Inspections .. $ 20,000 30,000 70,000 $10,000 15,000 5,000 25,000 $55,000 Cost Driver Machine hours Material moves Machine setups Inspection hours $120,000

Answer 1

Question 1

Company Wide Overhead Rate = Total Estimated Overhead / Total Machine Hours

Total Estimated Overhead Costs = $ 175,000

Total Machine Hours = 15,000 Hours

Company Wide Overhead Rate = 175,000 / 15,000

Company Wide Overhead Rate = $ 11.67 per Machine Hour

Particulars	ZX300	SL500
Direct Materials	12,000	18,000
Direct Labour	5,000	4,000
Manufacturing Overhead	8,167	9,333
Total Costs	25,167	31,333
÷ Units Produced	100	100
Cost per Unit	251.67	313.33

Notes

Manufacturing Overhead

ZX 300 = 700 Hours * $ 11.67 per Hour = $ 8,167

SL 500 = 800 Hours * $ 11.67 per Hour = $ 9,333

Question 2

Fabrication Department Overhead Rate = Total Estimated Overhead for Fabrication Department / Total Machine Hours for Fabrication Department

Total Estimated Overhead Costs for Fabrication Department = $ 120,000

Total Machine Hours for Fabrication Department = 10,000 Hours

Fabrication Department Overhead Rate = 120,000 / 10,000

Fabrication Department Overhead Rate = $ 12 per Machine Hour

Finishing Department Overhead Rate = Total Estimated Overhead for Finishing Department / Total Machine Hours for Finishing Department

Total Estimated Overhead Costs for Finishing Department = $ 55,000

Total Machine Hours for Finishing Department = 5,000 Hours

Finishing Department Overhead Rate = 55,000 / 5,000

Finishing DepartmentOverhead Rate = $ 11 per Machine Hour

Particulars	ZX300	SL500
Direct Materials	12,000	18,000
Direct Labour	5,000	4,000
Manufacturing Overhead	8,200	9,500
Total Costs	25,200	31,500
÷ Units Produced	100	100
Cost per Unit	252	315

Notes

Manufacturing Overhead for ZX 300

Fabrication Department = 500 Hours * $ 12 per Hour = $ 6,000

Finishing Department = 200 Hours * $ 11 per Hour = $ 2,200

Total Overhead = $ 8,200

For SL 500

Fabrication Department = 700 Hours * $ 12 per Hour = $ 8,400

Finishing Department = 100 Hours * $ 11 per Hour = $ 1,100

Total Overhead = $ 9,500

Question 3

	A	B	C= A/B
Particulars	Estimated Cost	Total Activity Level	Activity Allocation Rate
Maintenance	30,000	15,000	2	Per Machine Hour
Materials Handling	45,000	4,500	10	Per Material Move
Machine Setups	75,000	750	100	Per Setup
Inspection	25,000	1,000	25	Per Inspection Hour
Total Overhead	175,000

Notes

Total Cost for Each Activity is sum of costs in Fabrication and Finishing Department

Total Activity Level is also sum of Activity level of Fabrication and Finishing Department.

Particulars	ZX300	SL500
Direct Materials	12,000	18,000
Direct Labour	5,000	4,000
Manufacturing Overhead	2,950	4,500
Total Costs	19,950	26,500
÷ Units Produced	100	100
Cost per Unit	199.50	265

Notes

Manufacturing Overhead Calculation

For ZX 300

Maintenance = 700 Hours * $ 2 per Hour = $ 1,400

Materials Handling = 30 Material Moves * $ 10 per Material Move = 300

Machine Setups = 5 Setup * 100 Per Setup = $ 500

Inspection Hour's = 30 Inspection Hour * $ 25 per Hour = $ 750

Total Overhead Cost = $ 2,950

SL 500

Maintenance = 800 Hours * $ 2 per Hour = $ 1,600

Materials Handling = 50 Material Moves * $ 10 per Material Move = $ 500

Machine Setups = 9 Setup * 100 Per Setup = $ 900

Inspection Hour's = 60 Inspection Hour * $ 25 per Hour = $ 1,500

Total Overhead Cost = $ 4,500

Question 4

The Costs calculation being done as per Activity Based Costing is the most appropriate form of allocation of Overhead as it appropriate Overhead on the basis of usage rather than allocated them using a single allocation base which has no relevance in the usage Level of cost drivers in consumption of resources. Department Overhead Rate is also not allocating in a proper way as it is also giving importance to a single factor and ignoring the other resources consumption so i is better to use Activity Based Costing for better and accurate pricing of Products.