Question

Chapter 4 A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Activity Cost Pool Budgeted Cost Activity 1 $87,000 Activity 2 $62,000 Activity 3 $93,000 Budgeted Activity Product A ll Product B 3,000 2,800 4,500 5,500 2,500 5,250 1- Compute the approximate total overhead cost for each product for the budget period. 2- Calculate the cost per unit for each product assuming the following: Direct materials cost per unit Direct labor cost per unit Units to be produced $200 $175 1300 $250 $225 1100 If traditional single plant-wide overhead method was used and the base was 150,000 direct labor hours, what would be the pre-determined overhead rate?

Please help. Need step by step help. this is a test prep problem. I don't Understand.

Answer 1

1. Approximate total overhead cost for each product for the budget period.

Step 1: Activity costs per unit

Activity Cost Pool	Budgeted Cost ($)	Hours for Product A	Hours for Product B	Total Units	Activity Cost per unit ($)
	A	B	C	D = B + C	A / D
Activity 1	87,000	3,000	2,800	5,800	15
Activity 2	62,000	4,500	5,500	10,000	6.2
Activity 3	93,000	2,500	5,250	7,750	12

Step 2: Computation of Overhead cost:

Activity Cost Pool	Activity Cost per unit ($)	Hours for Product A	Overhead Cost of Product A ($)	Hours for Product B	Overhead Cost of Product B ($)
	A	B	A * B	C	A * C
Activity 1	15	3,000	45,000	2,800	42,000
Activity 2	6.2	4,500	27,900	5,500	34,100
Activity 3	12	2,500	30,000	5,250	63,000
Total			102,900		139,100

2. Cost per Unit:

Step 1: Overhead cost per unit

Particulars	Product A	Product B
Budgeted Total Overhead cost (as per 1)	$ 102,900	$ 139,100
Number of Units to be produced	1,300	1,100
Overhead Cost per Unit (Budget)	$ 79.15	$ 126.45

Step 2: Cost per unit:

Particulars	Product A ($)	Product B ($)
Direct Material Cost per unit	200	250
Direct Labor cost per unit	175	225
Overhead cost per unit (as per step 1)	79.15	126.45
Total cost per unit	454.15	601.45

3. Pre - determined overhead rate under traditional system:

Total Budgeted overhead cost = $ 242,000

Direct Labor Hours = 150,000

Overhead rate per hour = 242,000/150,000 = $ 1.61

Total hours required for production of 1300 units of Product A = 3,000+4,500+2,500 = 10,000

Total hours required for production of 1100 units of Product B = 2,800+5,500+5,250 = 13,550

Total overhead cost for product A based on Labor Hours = 10000 hours * $1.61 = $16,100

Total overhead cost for product B based on Labor Hours = 13,550 hours * $1.61 = $21,815.50

Overhead cost per unit of product A = $ 16,100/1300 units = $12.38

Overhead cost per unit of product B = $ 21,815.50/1100 units = $19.83