mpany makes two products-titanium Hubs and Sprockets. Data regarding the two pro
ID: 2566221 • Letter: M
Question
mpany makes two products-titanium Hubs and Sprockets. Data regarding the two products follow Labor- Hours Annual per Unit 0.80 17,000 units 0.40 54,000 units Hubs Sprockets Additional information about the company follows: a. Hubs require $27 in direct materials per unit, and Sprockets require $13. b. The direct labor wage rate is $16 per hour. c. Hubs require special equipment and are more complex to manufacture than Sprockets d. The ABC system has the following activity cost pools: erences tivity Overhead 25,200 140 $126,000 3,600 $208,000NA 252 0 3,600o special processing (machine-hours) General factory (organization-sustaining) Required 1. Compute the activity rate for each activity cost pool. 2. Determine the unit product cost of each product according to the ABC system. Complete this question by entering your answers in the tabs belowExplanation / Answer
ABC costing is a technique in which a company finds activity and assign the cost of each activity with resources of all products and services according to actual consumption by each.
1.Calculation of Predetermined overhead allocation rate.
Total cost
Allocation Base
Predetermined overhead allocation rate
Machine setups
25200
252
100*
Per setup
Special processing
126000
3600
35*
Per machine hrs.
Formula
*Total Cost/Allocation Base
2.
Calculation of overhead assigned between two products:
Hubs:
Activity cost pool
Activity rate (a)
Expected activity
(b)
ABC cost
(a)×(b)= (c)
Machine setups
$100 per setup
140 setups
$14,000
Special processing
$35 per M.hour
3600 M.hours
$126,000
Total ABC cost
$140000
Hence, the calculated total ABC cost is 140000.
Sprockets:
Activity cost pool
Activity rate (a)
Expected activity
(b)
ABC cost
(a)×(b)= (c)
Machine setups
$100 per setup
112 setups
$11200
Special processing
$35 per M.hour
0
0
Total ABC cost
$11200
Hence, the calculated total ABC cost is $11200.
Particulars
Hubs
Sprockets
Direct materials
27
13
Direct Labor
16*0.80=12.8
16*.40=6.4
Overhead
140000/17000 units=8.23
11200/54000=.20
Unit Cost
48.03
19.6
Total cost
Allocation Base
Predetermined overhead allocation rate
Machine setups
25200
252
100*
Per setup
Special processing
126000
3600
35*
Per machine hrs.
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