Question

84,000 Activity-Based Costing Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools: Fabrication Finishing Department Department Cost Driver Maintenance $ 24,000 12,000 Machine hours Materials handling 36,000 18,000 Material moves Machine 6,000 Machine setups Inspections 30,000 Inspection hours Total $144,000 $ 66,000 The following activity predictions were also made for the year: Fabrication Finishing Department Department Machine hours 5,000 2,500 Material moves 1,500 750 Machine setups 350 25 Inspection hours 500 It is assumed that the cost per unit of activity for a given activity does not vary between departments. Steampunk's president, Abner Punk, is trying to evaluate the company's product mix strategy regarding two of its product models, SW100 and SG150. The company has been using a company wide overhead rate based on machine hours but is considering switching to either department rates of activity-based rate. The production manager has provided the following data for the production of a batch of 100 units for each of these models: SW100 SG150 Direct materials cost $ 8,000 $ 12,000 Direct labor cost $3,200 $2,400 Machine hours (Fabrication) 250 350 Machine hours (Finishing) 100 Materials moves Machine setups 10 Inspection hours 15 30 a. Determine the cost of one unit each of SW100 and SG150, assuming a company-wide overhead rate is used based on total machine hours. 50 20 40 5 Round rate to two decimal places. Overhead rate based on total machine hours: $ 0 x per machine hour Use rounded overhead rate calculated about for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.

Answer 1

a) Machine hour rate Total Overheads Total machine hours $210,000 7,500 $28.00 Per machine hour Working note: Machine hours Machine hour rate Total Overheads SW100 350 $28.00 $9,800 SG150 400 $28.00 $11,200 Product cost per unit Direct Material Direct Labor Manufacturing overhead Total cost per batch Number of units per batch Cost per batch SW100 $8,000 $3,200 $9,800 $21,000 100 $210.00 SG150 $12,000 $2,400 $11,200 $25,600 100 $256.000 b) Departmental overhead rate Fabrication department Total Overheads Total machine hours $144,000 5,000 $28.80 Per machine hour Finishing Department Total Overheads Total machine hours $66,000 2,500) $26.40 Per machine hour SW100 $8,000 $3,200 SG150 $12,000 $2,400 Product cost per unit Direct Material Direct Labor Manufacturing overhead Fabricating Dept Finishing Dept Total cost per batch Number of units per batch Cost per batch $7,200 $2,640 $21,040 100 $210.40 $10,080 $1,320 $25,800 100 $258.00 c) Activity Cost pool Maintenance Material handling Machine set up Inspection activities Total Overheads Cost Pool $36,000 $54,000 $90,000 $30,000 $210,000 Total Activities 7,500 2,250 375 5001 Activity Rate $4.80 per machine hour $24.00 per material move $240.00 per machine set up $60.00 per inspection hour Working note: Expected use of cost drivers Cost Assigned Expected use of cost drivers SW100 Activity Based Overhead rates $4.80 $24.00 $240.00 $60.00 350 $1,680 $480 SG150 Activity Based Cost Overhead Assigned rates $4.80 $1,920 $24.00 $960 $240.00 $2,400 $60.00 $1,800 $7,080 20 Maintenance Material handling Machine set up Inspection activities Total Allocation 400 40 10 30 5 $1,200 15 $900 $4,260 SW100 $8,000 $3,200 SG150 $12,000 $2,400 Product cost per unit Direct Material Direct Labor Manufacturing overhead Maintenance activity Material handling activity Machine set up activity Inspection activity Total cost per batch Number of units per batch Cost per batch $1,680 $480 $1,200 $9001 $15,460 100 $154.60 $1,920 $960 $2,400 $1,800 $21,480 100 $214.80