Question

Driver Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines: View the information. Driver Corp. plans to produce 400 units of Product A and 200 units of Product B. Compute the ABC manufacturing overhead cost per unit for each product. (Round your answers to the nearest cent.) Setup Estimated overhead costs Estimated qty of the allocation base allocation rate $ 109,000 + 200 = $ 545.00 Machine maintenance $ 40,000 + 4,000 = $ 10.00 Next, select the formula to allocate overhead (OH) costs. (Abbreviation used; qty = quantity.) Predetermined OH allocation rate $ Actual qty of the allocation base used = Allocated mfg. overhead costs Compute the total activity-based costs allocated to Product A, and then compute the cost per unit for Product A. Finally, compute the total activity-based costs allocated to Product B then compute the cost per unit for Product B. (Round the cost per unit to the nearest cent.) Product A Setup 21800 Machine maintenance 8000 Total activity-based costs Number of units Activity-based cost per unit

          Driver Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:
View the information.
Driver Corp. plans to produce 400 units of Product A and 200 units of Product B. Compute the ABC manufacturing overhead cost per unit for each product. (Round your answers to the nearest cent.)
Setup
Estimated overhead costs
Estimated qty of the allocation base
allocation rate
$
109,000
+
200
=
$
545.00
Machine maintenance
$
40,000
+
4,000
=
$
10.00
Next, select the formula to allocate overhead (OH) costs. (Abbreviation used; qty = quantity.)
Predetermined OH allocation rate
$
Actual qty of the allocation base used
=
Allocated mfg.
overhead costs
Compute the total activity-based costs allocated to Product A, and then compute the cost per unit for Product A. Finally, compute the total activity-based costs allocated to Product B then compute
the cost per unit for Product B. (Round the cost per unit to the nearest cent.)
Product A
Setup
21800
Machine maintenance
8000
Total activity-based costs
Number of units
Activity-based cost per unit

Show more…

Driver Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:
View the information.
Driver Corp. plans to produce 400 units of Product A and 200 units of Product B. Compute the ABC manufacturing overhead cost per unit for each product. (Round your answers to the nearest cent.)
Setup
Estimated overhead costs
Estimated qty of the allocation base
allocation rate
109,000
+
200
=
545.00
Machine maintenance
40,000
+
4,000
=
10.00
Next, select the formula to allocate overhead (OH) costs. (Abbreviation used; qty = quantity.)
Predetermined OH allocation rate
Actual qty of the allocation base used
=
Allocated mfg.
overhead costs
Compute the total activity-based costs allocated to Product A, and then compute the cost per unit for Product A. Finally, compute the total activity-based costs allocated to Product B then compute
the cost per unit for Product B. (Round the cost per unit to the nearest cent.)
Product A
Setup
21800
Machine maintenance
8000
Total activity-based costs
Number of units
Activity-based cost per unit

Added by Felipe L.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

09/09/2023

Step 1

Total activity-based costs for Product A = (Number of setups for Product A * Setup cost per setup) + (Number of machine hours for Product A * Machine maintenance cost per machine hour) Total activity-based costs for Product A = (40 * $545) + (800 * $10) Total Show more…

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Information able[[Cost Pool, able[[Total Estimated],[Cost]],Allocation Base],[Setup,$,109,000 Number of setups],[Machine maintenance,40,000 Number of machine hours],[Total manufacturing overhead costs,$,149,000,,],[Activity,,Product A,Product B,Total],[Direct labor hours,,5,500,6,500,12,000],[Number of setups,,40,160,200],[Number of machine hours,,800,3,200,4,000]]Driver Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines: View the information. Next, select the formula to allocate overhead (OH) costs. (Abbreviation used; qty = quantity.) Allocated mfg. Predetermined OH allocation rate imes Actual qty of the allocation base used = overhead costs the cost per unit for Product B. (Round the cost per unit to the nearest cent.) Product A Setup Machine maintenance Total activity-based costs Number of units Activity-based cost per unit43 Driver Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines: View the information. Driver Corp. plans to produce 400 units of Product A and 200 units of Product B. Compute the ABC manufacturing overhead cost per unit for each product. (Round your answers to the nearest cent.) Estimated overhead costs Estimated qty of the allocation base 200 4,000 allocation rate Setup Machine maintenance $ 109,000 545.00 40,000 $ 10.00 Next, select the formula to allocate overhead (OH) costs. (Abbreviation used; qty = quantity.) Allocated mfg. Predetermined OH allocation rate Actual qty of the allocation base used= overhead costs Compute the total activity-based costs allocated to Product A, and then compute the cost per unit for Product A. Finally, compute the total activity-based costs allocated to Product B then compute the cost per unit for Product B. (Round the cost per unit to the nearest cent.) Product A 21800 Setup Machine maintenance Total activity-based costs Number of units 8000 Activity-based cost per unit

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Transcript

00:01 First thing, from the first line, we need to find the estimated total fixed manufacturing overhead cost per unit.

00:10 You can use the high -low method.

00:13 For this, find the variable manufacturing overhead cost per unit.

00:20 Which is, variable manufacturing overhead per unit.

00:47 It should be manufacturing overhead cost per unit 1 minus manufacturing overhead cost per unit 2.

00:58 That is, 220 minus 196 divided by 1000 minus 40 ,000.

01:23 That is, 0 .6 per unit.

01:31 Now that we have the variable manufacturing overhead cost per unit, we can calculate the fixed manufacturing overhead cost per quarter using the data from any quarter.

01:42 So we use quarter 1, which is 6 days fixed manufacturing overhead cost per quarter.

02:10 That is, 5200 minus 0 .6 multiplied by 80 ,000.

02:21 Total manufacturing cost overhead minus variable manufacturing cost per unit multiplied by number of units for a given quarter.

02:30 It is 220 minus 48 ,000.

02:43 That is, 172 ,000.

02:48 So estimated total fixed manufacturing overhead cost per quarter is 172 ,000.

03:01 From our standpoint, assuming the assumption about cost behaviors from the first three quarters or from the standard, you can calculate the estimated unit for the fourth quarter.

03:19 So estimated unit for the fourth quarter.

03:41 This should be direct material for the fourth quarter plus direct labor for the fourth quarter plus variable manufacturing overhead cost per unit multiplied by number of units produced in the fourth quarter plus fixed manufacturing overhead cost per fourth quarter.

04:01 This would be 180 ,000 plus 90 ,000 plus 0 .625 ,000 plus 172 ,000, in which we get the value of 780 ,000.

04:31 This is the estimated unit for the fourth quarter.

04:36 And for the third, estimated unit for the fourth is fluctuating from one quarter to the next primary due to the allocation of manufacturing overhead based on the number of units to be produced.

05:01 Since manufacturing overhead cost remains relatively constant across quarters, or allocating them based on the number of units produced can result in significant variation in the unit product cost where production levels vary.

05:21 This method doesn't account for the actual cost behavior of overhead and can lead to misleading cost information.

05:32 This method doesn't account for the actual cost behavior of overhead...

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