2. The unit product costs with the proposed ABC system can be computed as follows:
Estimated
Overhead
Activity Cost Pool
Cost* (b)
Expected Activity (a) ÷ (b)
Activity Rate
Labor related ... $288,000 24,000 direct labor-hours $12.00 per direct labor-hour
Engineering design... $288,000 6,000 engineering-hours $48.00 per engineering-hour
*The total overhead cost is split evenly between the two activity cost pools.
Rascon Parcel
Expected Expected
Activity Amount Activity Amount
Labor related at $12.00 per direct labor-hour ... 8,000 $ 96,000 16,000 $192,000
Engineering design at $48.00 per engineering-hour ... 3,000 144,000 3,000 144,000
Total overhead cost assigned (a)... $240,000 $336,000
Number of units produced (b) ... 20,000 80,000
Overhead cost per unit (a) ÷ (b ... $12.00 $4.20
The unit product costs combine direct materials, direct labor, and overhead costs:
Rascon Parcel
Direct materials... $13.00 $22.00
Direct labor... 6.00 3.00
Manufacturing overhead (see above) .. 12.00 4.20
Unit product cost... $31.00 $29.20
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