1. The order requires 250 direct labor-hours (1,000 units @ 0.25 DLH per unit) and is run in two
batches. Therefore, the overhead cost of the order according to the activity-based costing system
would be computed as follows:
Activity Cost Pool (a)
Activity Rate (b)
Activity (a) × (b)
ABC Cost
Volume ... $5.55 per direct labor-hour 250 direct labor-hours $1,387.50
Batch processing.. $107.00 per batch 2 batches $214.00
Order processing . $275.00 per order 1 order $275.00
Total... $1,876.50
The product margin on the order can be computed as follows:
Sales (1,000 units × $20 per unit)... $20,000.00
Costs:
Direct materials (1,000 units × $8.50 per unit) .. $8,500.00
Direct labor (1,000 units × $6.00 per unit) ... 6,000.00
Volume... 1,387.50
Batch processing ... 214.00
Order processing ... 275.00 16,376.50
Product margin ... $ 3,623.50
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