Twista Manufacturing has the following activities and activity costs per year: M

Question

Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products.
The following information is also available:
Number of machine hours per year: 20 000 machine hours
Number of forklift moves per year: 500 moves
Number of batches per year: 4000 batches
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.
The forklifting costs and machine set up costs allocated to Product X are:
Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products.
The following information is also available:
Number of machine hours per year: 20 000 machine hours
Number of forklift moves per year: 500 moves
Number of batches per year: 4000 batches
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.
The forklifting costs and machine set up costs allocated to Product X are:

Explanation / Answer

Statement of cost pool:

The forklifting cost and machine setup cost are as follows:

Number of forklift moves=120
Cost per forklifting=$20
Total forklifting cost=120*$20
   =$2400

Number of batches=500
Cost per machine setup=$8
Total machine setup cost=500*$8
   =$4000
  

Overheads amount($) (a) Basis number(b) cost per activity(a/b) ($) Machining 20000 No. of machine hours 20000 1 Forklifting 10000 No. of forklifts moves 500 20 Machine setup 32000 No. of batches 4000 8 Quality and inspection 40000 No. of batches 4000 10

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