cost accounting
QUESTION 1: CHAPTER 7: ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT
Preston Piston manufactures two types of electric sleeping bags- Luxury and Exclusive- and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows: Luxury
Exclusive
Direct material
$35
$60
Direct Labour
$20
$20
Budgeted volume (units)
8,000
15,000
The management accountant has determined that the firm’s overhead can be identified with three activities: manufacturing setups, machine processing and product shipping. Data on the number of setups, machine hours and outgoing shipments, which are the activities’ three respective cost drivers, follow: Luxury
Exclusive
Setups
50
30
Machine hours
16,000
22,500
Outgoing shipments
100
75
The firm’s total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000.
REQUIRED:
a) Calculate the unit manufacturing cost of Luxury and Exclusive electric sleeping bags by using the company’s current overhead costing procedures. (3 marks)
Luxury
Exclusive
Direct Material
$ 35
$ 60
Direct Labour
$ 20
$ 20
Manufacturing Overhead cost
$ 160
$ 120
Unit Manufacturing Cost
$ 215.00
$ 200.00 Manufacturing overhead for luxury=16,000/8,000=2machine hour*80=$160 Manufacturing overhead for exclusive=22,500/15000=1.5machine hour*80=$120
B) Calculate the unit manufacturing cost of Luxury and Exclusive electric sleeping bags by using
Activity-based costing. (5 marks)
luxury
Exclusive
Setups
$420,000
$252,000
Machine hours
$768,000
$1,080,000
Outgoing Shipments
$320,000
$240,000
Calculation:
Setups for luxury=50/80*672,000=$420,000/8000=$52.5 per unit
Machine hours for luxury=16,000/38,500*1,848,000=$768,000/8000=$96 per unit
Outgoing
Preston Piston manufactures two types of electric sleeping bags- Luxury and Exclusive- and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows: Luxury
Exclusive
Direct material
$35
$60
Direct Labour
$20
$20
Budgeted volume (units)
8,000
15,000
The management accountant has determined that the firm’s overhead can be identified with three activities: manufacturing setups, machine processing and product shipping. Data on the number of setups, machine hours and outgoing shipments, which are the activities’ three respective cost drivers, follow: Luxury
Exclusive
Setups
50
30
Machine hours
16,000
22,500
Outgoing shipments
100
75
The firm’s total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000.
REQUIRED:
a) Calculate the unit manufacturing cost of Luxury and Exclusive electric sleeping bags by using the company’s current overhead costing procedures. (3 marks)
Luxury
Exclusive
Direct Material
$ 35
$ 60
Direct Labour
$ 20
$ 20
Manufacturing Overhead cost
$ 160
$ 120
Unit Manufacturing Cost
$ 215.00
$ 200.00 Manufacturing overhead for luxury=16,000/8,000=2machine hour*80=$160 Manufacturing overhead for exclusive=22,500/15000=1.5machine hour*80=$120
B) Calculate the unit manufacturing cost of Luxury and Exclusive electric sleeping bags by using
Activity-based costing. (5 marks)
luxury
Exclusive
Setups
$420,000
$252,000
Machine hours
$768,000
$1,080,000
Outgoing Shipments
$320,000
$240,000
Calculation:
Setups for luxury=50/80*672,000=$420,000/8000=$52.5 per unit
Machine hours for luxury=16,000/38,500*1,848,000=$768,000/8000=$96 per unit
Outgoing