Question

Walsh Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here. B (Click the icon to view the data.) Total manufacturing overhead costs are as follows: 6 (Click the icon to view the overhead costs.) 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 Walsh's managers use the new cost information from its activity-based costing system to better manage its business? Set up 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 Activity Cost driver Rate Machining Mathematical Financial Inspection Annual production in units 25,000 50,000 Direct materials cost $ 75,000 $ 150,000 Data Table Direct manufacturing labor cost $ 25,000 $ 50,000 Direct manufacturing labor-hours 1,250 2,500 Machine-hours 40,000 70,000 Total Number of production runs 50 50 Machining costs $ 440,000 Inspection-hours 1,200 800 Setup costs 110,000 Inspection costs 120,000 put fields and then click Ch Print Done Print Done Clear All Check Answer

There should be 6 problems/answers on this question.

Answer 1

Requirement 1:

Activity	Cost Driver	Computation	Rate
Machining	Machine - hours	$440,000 / 110,000	$4 per machine hour
Set Up	Production runs	$110,000 / 100	$1,100 per production run
Inspection	Inspection-hours	$120,000 / 2,000	$60 per inspection

Working notes:

Total Activity level

Total Machine hours = 40,000 + 70,000 = 110,000 machine hours

Total production runs = 50 + 50 = 100 production runs

Total Inspection hours = 1,200 + 800 = 2,000 inspection hours

Manufacturing overhead cost per unit

Particulars	Mathematical	Financial
Machining (40,000 * $4) (70,000 * $4)	$160,000	$280,000
Set Up (50 * $1,100) (50 * $1,100)	$55,000	$55,000
Inspection (1,200 * $60) (800 * $60)	$72,000	$48,000
Total manufacturing costs	$287,000	$383,000
/ Number of Units	25,000	50,000
Manufacturing overhead cost per unit	$11.48	$7.66

Requirement 2:

Manufacturing cost per unit

Particulars	Mathematical	Financial
Direct Materials
$75,000 / 25,000	$3.00
$150,000 / 50,000		$3.00
Direct Manufacturing labor
$25,000 / 25,000	$1.00
$50,000 / 50,000		$1.00
Manufacturing overhead	$11.48	$7.66
Manufacturing cost per unit	$15.48	$11.66

Requirement 3:

ABC costing system helps manager to understand the cost influence total cost per unit. This system is useful for pricing and product-mix decisions, cost reduction and process improvement decisions, design decisions and planning activities.

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