Question

Can you help with the following question? I think I did it correct but I would like conformation as I been having a little bit of trouble. If you could provide your solution I can compare to mine.

Thanks,

iCompany manufactures two models of tablets. The 8-inch Model is a smaller unit with less features. The larger 12-inch Model provides not only a larger screen but also increased memory to hold more apps. Data regarding the two product lines is as follows:		8 inch             12-inch
Expected Production	100,000 units		60,000 units
Direct Material Cost	$52.50		$79.50
Direct Manufacturing Labour	$20.00		$20.00

iCompany is considering implementing an activity based costing system in its factory and has identified four indirect cost categories as follows:		8 inch                12 inch		Budgeted Overhead Cost
Equipment setup	10 setups		15 setups		$75,000
Machine processing	80,000 machine hours		60,000 machine hours		$875,000
Quality control	12,000 inspection hours		8,000 inspection hours		$350,000
Packaging/Shipping	750 shipments		500 shipments 1. Calculate the manufacturing activity cost rate for each activity using ABC. 2. Calculate the unit cost of each model using ABC. 3. Assume the company currently allocates indirect manufacturing overhead on the basis of direct labour costs. Calculate the unit cost of each model using direct labour traditional method.		$137,500

Answer 1

1.Manufacturing activity cost rate for each activity using ABC.
1	2	3	4	5	6=5/4	Per activity
Cost category	Activity rate		Total(2+3)	Cost($)
Equipment setup	10 setups	15 setups	25	75000	3000	per set-up
Machine processing	80,000 m/c hrs.	60,000 m/c hrs.	140000	875000	6.25	per m/c hr.
Quality control	12,000 inspn.hrs.	8,000 inspn.hrs.	20000	350000	17.5	per Inspn. Hr.
Packaging/Shipping	750 shipments	500 shipments	1250	137500	110	per shipment
				1437500

Workings:       For unit cost of Ohs using ABC
Equipment setup(10*3000)& (15*3000)	30000	45000
Machine processing (80000*6.25)& (60000*6.25)	500000	375000
Quality control(12000*17.5 )&(8000*17.5))	210000	140000
Packaging/Shipping(750*110) &(500*110))	82500	55000
Total OH	822500	615000
Expected Production	100000	60000
OH cost /unit(total OH/Expected production	8.225	10.25
2. Calculation of total unit cost using ABC	8 inch	12 inch
Direct material cost	52.5	79.5
Direct Manufacturing Labour	20	20
OH cost	8.225	10.25
Total unit cost	80.725	109.75
Oh based on Direct labor cost	8 inch	12 inch
Total expected units	100000	60000
D/L cost/unit	20	20
Total D/L cost	2000000	1200000
Total OH	1437500
OH based on D/L cost(1437500/3200000*2000000)	898437.5
(1437500/3200000*1200000)		539062.5
Per unit (OH/no.of units)	8.984	8.984
3.Calculation of total unit cost using D/L cost	8 inch	12 inch
Direct material cost	52.5	79.5
Direct Manufacturing Labour	20	20
OH cost(1437500	8.984	8.984
Total unit cost	81.484	108.484