Chang Monufacturing Corporation has a traditionol costing system in which it app

Question

Chang Monufacturing Corporation has a traditionol costing system in which it applies manufacturing overheed to ts products using o prodetermined overheed rate besed on drect labor hours (Dl.Hs T company has two products, Plain and Fancy, about which it has provided the following dsto Direct maternals per unt Direct labor per unit Direct labor-hours per unit Annuol production $ 2560 60.40 4.00 20.00 100 0.20 55,000 25,000 The company's estimated toral manufacturing overhead for the year is $1087200 end the compary's estimated total direct labor-hours for the year is 36.000 The company is considering using a variation of activity bosed costing to determine its unit product costs for extemal teponts Data for this proposed activity bo sed costing syatem appesr below end Activity Measures Cort Supporting direct lobor (DLHs) Setting up machines (Setups) Parts edministration (part types) Total S 488,000 222 180 397020 $1,087,200 Fancy 25 000 908 350 Piain 6,000 1932 ups Pan types 668 The manufacturing overhead that wouild be applisd to a unit of prodlict Foncy under the acirvsyk bosed costing system is closest to

Explanation / Answer

Solution:

There are 3 separate questions not related to each other. I am solving Problem 1 of Chang Manufacturing Corporation

Problem 1 – Chang Corporation

First of all we need to know the meaning of Activity Based Costing and how the activity rate calculated in this system.

Activity Based Costing System

- ABC is a costing method which identifies the activities in the organization and assigns the cost of each activity with resources to all the products or services according to the actual consumption of activity by the product or service.

- This system determines all the activities related to product or production process.

- This system calculates the cost of those activities which are related to product or production process and thereafter determine the cost of the product.

- In ABC costing the overhead costs are distributed to the product on the basis of benefit received from indirect activity.

- It helps to distribution of overheads on the basis of activities.

The Activity based overhead rate = Estimated Overheads related to the activity / Total Cost Driver per activity or Expected Total Activity)

Fancy Products

Activity

Expected Overhead Costs (A)

Expected Activity (B)

Activity Rate (C = A/B)

Activity Driver Incurred (H)

Overhead Assigned (C*H)

Supporting Direct Labor

$468,000

36000

Direct labor hours

$13.00

per DLH

25000

$325,000

Setting up machines

$222,180

1932

Setups

$115.00

per setup

908

$104,420

Parts administration

$397,020

1018

Part types

$390.00

per part type

350

$136,500

Total Overhead Assigned (O)

$565,920

Production Units (P)

25000

Overhead assigned per unit (O/P)

$22.64

The applied manufacturing overhead per unit of Fancy Product as per activity based costing is closest to $22.64 per unit

The correct option is $22.64

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.

Fancy Products

Activity

Expected Overhead Costs (A)

Expected Activity (B)

Activity Rate (C = A/B)

Activity Driver Incurred (H)

Overhead Assigned (C*H)

Supporting Direct Labor

$468,000

36000

Direct labor hours

$13.00

per DLH

25000

$325,000

Setting up machines

$222,180

1932

Setups

$115.00

per setup

908

$104,420

Parts administration

$397,020

1018

Part types

$390.00

per part type

350

$136,500

Total Overhead Assigned (O)

$565,920

Production Units (P)

25000

Overhead assigned per unit (O/P)

$22.64

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