Question

Problem 2 R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process. The company produces only two products, ABC and XYZ. R4F has provided their costing department the following information from this year's budget relating to the production of these two products: Total 100,000 Units to be produced Machine-hours expected Direct labor-hours expected Number of materials moves Number of machine setups Direct Labor Direct Materials 3,000 ABC 40,000 1,000 2,000 600 200 $150,000 $120,000 XYZ 60,000 2,000 3,000 700 150 5,000 1,300 350 $ 500,000 $ 270,000 $350,000 $150,000 The following overhead cost pools have been identified and dollar amounts reflect expected overhead costs for the year. Materials Handling Labor-related overhead Machine setups $40,000 $420,000 $70,000 Required: 1. Determine the cost per unit for ABC and XYZ assuming R4 applies manufacturing overhead as a percentage of direct labor cost (4 points). 2. Determine the cost per unit for ABC and XYZ assuming R4 applies overhead using activity- based costing. Specifically, materials handing overhead is applied using number of materials moves, labor-related overhead is applied using direct labor hours, and machine set ups are applied using the number of machine setups (6 points).
Solutions are given, please show how they were calculated. Thank you!

Answer 1

Requirement 1: Material Handling Labour-realted overheads Machine Setups Total Overheads (A) Direct Labour (B) Overhead allocation per Direct Labour (A/B) 40,000 4,20,000 70,000 5,30,000 5,00,000 $ 1.06 ABC 1,20,000 1,50,000 XYZ 1,50,000 3,50,000 Particulars Direct Materials Direct Labour Overheads ABC (150000 x 1.06) XYZ (350000 x 1.06) Total costs (a) No of units (b) Cost per unit (a/b) 1,59,000 4,29,000 40,000 10.73 3,71,000 8,71,000 60,000 14.52 $ $ Requirement 2: Computation of Driver Rate Costs (a) Driver (b) 40000 1300 material moves 420000 5000 direct labour hours 70000 350 machine setups Overhead Material Handling Labour related ohds Machine setups $ Rate (a/b) 30.77 per material Move 84.00 per direct lab hour 200.00 per machine setup $ $ XYZ Driver (c)| Cost (axc) 700 $ 21,538.46 Allocation of Overheads in ABC and XYZ ABC Overhead Basis Rate (a) Driver (b) Cost (axb) Material Handling Material moves $ 30.77 600 $ 18,461.54 Direct labour Labour related ohds hours $ 84.00 2000 $1,68,000.00 Machine setups Machine setups $ 200.00 200 $ 40,000.00 Total Overheads $2,26,461.54 3000 $2,52,000.00 150 $ 30,000.00 $3,03,538.46

Particulars Direct Materials Direct Labour Overhead Total (a) No of Units (b) Cost per unit (a/b) ABC XYZ 1,20,000.00 1,50,000.00 1,50,000.00 3,50,000.00 2,26,461.54 3,03,538.46 4,96,461.54 8,03,538.46 40000 60000 12.41 $ 13.39 $

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