Can somebody help me with a homework problem? Do I need to calculate the per run/per hour cost for problem 2, since the amount of total overhead is already provided? Are both Raw materials and direct labor included in Prime? I understand that plate wide rate is total overhead/total direct labor hours, but then I do not know how to calculate the total unit cost after getting the per hour rate? Any information you can provide would be much appreciated. The problem and my answers is posted below, thanks in advance for your help.
ABC uses activity based costing where overhead from three different production departments are allocated to products as follows:
|
Activity
|
Driver
|
Activity Rate
|
Product A
|
Product B
|
|
Cutting
|
Machine Hours
|
$1.50 per machine hour
|
1,000 hours
|
2,000 hours
|
|
Assembly
|
Assembly Hours
|
$.50 per assembly hour
|
2,000 hours
|
1,000 hours
|
|
Painting
|
Gallons of Paint
|
$4.00 per gallon
|
500 gallons
|
300 gallons
|
Raw materials are directly followed to each product and the amount of raw materials used for Product A was $12,000 and for Product B was $8,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $6,000 and for product B was $8,000. There were 1,125 units of product A manufactured and 690 units of product B manufactured.
Calculate the total unit cost of making product A and product B. Show computations.
Product A
1.5*1000=1500
.5*2000=1000
$4*500=2000
Prime: 18000
Total: 22500
22,500/1125=20 cost per unit
Product B
1.5*2000=3000
.5*1000=500
$4*300=1200
Prime: 16000
Total: 20700
20700/690=30 cost per unit
Problem 2
MNO uses activity based costing where overhead from three different cost centers are allocated to products based upon the following:
|
Activity
|
Driver
|
Overhead Costs
|
Product A
|
Product B
|
|
Setup
|
Production Runs
|
$70,000
|
50 productions runs
|
20 production runs
|
|
Inspection
|
Inspection Hours
|
$210,000
|
200 hours
|
100 hours
|
|
Machining
|
Machine Hours
|
$700,000
|
5,000 hours
|
2,000 hours
|
Raw materials are directly followed to each product and the amount of raw materials used for Product A was $200,000 and for Product B was $100,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $90,000 and for product B was $40,000. There were 10,000 units of product A manufactured and 5,000 units of product B manufactured.
Calculate the total unit cost of making product A and product B. Show computations.
Product A
Prime: 290000
Total: 3600000/10000=360
Product B
Prime: 140000
Total: 1120000
1120000/5000=224
If MNO uses one plant wide rate to allocate all the overhead based upon direct labor direct labor hours and product A used 10,000 direct labor hours and product B used 4,000 direct labor hours calculate the total unit cost of
product A and product B.
Overhead Rate=Total overhead costs/total direct labor hours
Product A
Product B