Question

Sullivan Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here. (Click the icon to view the data.) Requirements 1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. 2. Compute the manufacturing cost per unit for each product. 3. How might Sullivan's managers use the new cost information from its activity-based costing system to better manage its business? Total manufacturing overhead costs are as follows: (Click the icon to view the overhead costs.) Requirement 1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. Begin by choosing a cost driver for each overhead cost pool. Data Table Incorrect: 1 Cost driver Rate Machine-hours 360000 per machine-hour /1) Activity Machining Set up Inspection Production runs 108000 per production run Inspection-hours 102000 per inspection-hour Annual production in units Direct materials cost Direct manufacturing labor cost Direct manufacturing labor-hours Machine-hours Number of production runs Inspection-hours Mathematical Financial 50,000 100,000 $ 200,000 $ 400,000 75,000 $ 150,000 2,500 5,000 20,000 40,000 Data Table Total 40 40 $ 360,000 800 400 Machining costs Setup costs Inspection costs 108,000 ut fields and then click 102,000 Print Done Print Done t Us

There should be 6 parts total to this question. The part of the first problem that is highlighted in white is incorrect. The requirements are the questions.

Answer 1

Requirement 1

Cost driver for Machining Costs is Number of Machine Hours.

Cost Driver for Set-up Costs is Number of Production Runs.

Cost Driver for Inspection Costs is Number of Inspection Hours.

	A	B	C= A/B
Particulars	Allocated Activity Cost	Total Quantity of Cost Driver	Activity Allocation Rate
Machining Costs	360,000	60,000	6	Per Machine Hour
Setup Costs	108,000	80	1,350	Per Production Run
Inspection Cost	102,000	1,200	85	Per Inspection Hour

Note

Total Quantity of Cost Driver = Quantity of Cost Driver for Mathematical + Quantity of Cost Driver for Financial

For Mathematical

Particulars	Activity Allocation Rate	Quantity of Cost Driver for Mathematical	Total Overhead Cost
Machining Costs	6	20,000	120,000
Set-up Costs	1,350	40	54,000
Inspection Costs	85	800	68,000
Total Overhead Costs			242,000
÷ Number of Units Produced			50,000
Manufacturing Overhead Cost per Unit			4.84

For Financial

Particulars	Activity Allocation Rate	Quantity of Cost Driver for Financial	Total Overhead Cost
Machining Costs	6	40,000	240,000
Set-up Costs	1,350	40	54,000
Inspection Costs	85	400	34,000
Total Overhead Costs			328,000
÷ Number of Units Produced			100,000
Manufacturing Overhead Cost per Unit			3.28

Notes

Total Overhead Cost = Activity Allocation Rate * Quantity of Cost Driver for Each Product

Requirement 2

Particulars	Mathematical	Financial
Direct Materials	4	4
Direct Labour	1.50	1.50
Manufacturing Overhead	4.84	3.28
Manufacturing Cost per Unit	10.34	8.78

Direct Materials Cost per Unit of Mathematical = 200,000/50,000 = $ 4

Direct Materials Cost per Unit of Financial = 400,000/100,000 = $ 4

Direct Labour Cost per Unit of Mathematical = 75,000 / 50,0000 = $ 1.50

Direct Labour Cost per Unit of Financial = 150,000 / 100,000 = $ 1.50

Requirement 3

Sullivan Managers can use the information provided by Activity Based Costing for better allocation of Overhead costs which in turn will help them.for the accurate and better pricing of the products. It is generally a consideration that high volume products are less profitable but with the help of Activity Based Costing it is more prompt to know which product is giving the higher margin either the product with low volume or Product with high volume. Activity Based Costing benefits is the allocation of Overhead on the basis of resources used instead of using a single base for cost allocation to all the products ignoring the usage level of enterprise resources.