10) To see if your suspicion is correct, you decide to examine the costs under t

Question

10) To see if your suspicion is correct, you decide to examine the costs under the current system (which uses a single POHR) vs. the costs under an ABC system for the department's most popular product: Wristbands. The department sells two types of wristbands: a basic white 2-pack and a premium red- blue 2-pack, as shown below. Each 2-pack is considered one unit. Basic Wristbands Premium Wristbands Use of the weaving/sewing machines is believed to drive MOH costs. At the beginning of the year, the total estimated MOH cost for production of the wristbands is $68,200, and the estimated machine hours were 5,000 for Basic wristbands and 1,200 for Premium wristbands. At the end of the year you can see that 28,000 Basic wristband units and 15,000 Premium wristband units were produced. The Basic wristbands used 4,200 machine hours and Premium wristbands used 1,000 machine hours this year. a. Calculate the current, single POHR used by the department. POHR- of MOH cost per machine hour

Explanation / Answer

(a) Calculate the current, Single POHR used by the Department Estimated overhead cost is $68200 Total Estimated machine hours =5000+1200 machine hours =6200 machine Hours POHR =$68200/6200 =$11 per machine Hour (b) How much overhead applied per basic Wristband Unit Under the curent System Total Hours used by basic Wristbands =4200 Applied Overhead to basic Wristbands Total =4200*$11 =$46200 per unit basic Wrist band overhead =$46200/28000 =$1.65 (C ) How much overhead applied per Premium Wristband Unit Under the curent System Total Hours used by basic Wristbands =1000 Applied Overhead to Premium Wristbands Total =1000*$11 =$11000 per unit basic Premium band overhead =$11000/15000 =$0.73

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