11. 1000 points College Supply Company (CSC) makes three types of drinking glass

Question

11. 1000 points College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for Year 5 for each activity center. Estimated Cost Cost Driver Cost Driver Units Setting up production Processing orders Handling materials Using machines Providing quality management Packing and shipping Number of production runs Number of orders Pounds of materials S 32,000 52,000 14,000 45,000 48,000 42,000 $233,000 100 runs 200 orders 7,000 pounds 9,000 hours Number of inspections Units shipped 40 inspections 21,000 units In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February, year5 Tall Short Medium 1,100 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material $4,000 $3,000 $2,500 80 140 110 800 400 300 400 600 Number of inspections Units shipped 1,100 400 300 Direct labor costs were $22 per hour.

Explanation / Answer

a. Calcaulation of overhead rates based on activity based costing.

Estimated Direct Labour Hours = 2,000 Hrs

Overhead rate based on Direct Labour Hours = 233,000 / 2,000 = $ 116.50 per hour

b. Computation of Production Cost based on overhead rate of direct labour hour

c. Computation of Production Cost based on overhead rate recommended by employees i.e. based on activity based costing

Activity Cost Driver Estimated Cost Estimated Cost Driver Overhead rate Setting up production No. of production runs 32,000 100 320 per run Processing Orders No. of Orders 52,000 200 260 per order Handling Materials Pounds of Material 14,000 7,000 2 per lb Using Machines Machine Hours 45,000 9,000 5 per hour Providing Quality Management No. of Inspections 48,000 40 1,200 per inspection Packing & shipping Units Shipped 42,000 21,000 2 per unit               2,33,000

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.