2. a. Predetermined overhead rates for the activity cost pools:
Activity Cost Pool (1)
Total Cost (2)
Total Activity (1) ÷ (2)
Activity Rate
Machine setups... $ 360,000 150 setups $2,400 per
setup
Special processing... 180,000 12,000 MHs $15 per MH
General factory... 1,260,000 36,000 DLHs $35 per DLH
The manufacturing overhead cost that would be applied to each
model:
Model
X200 X99
Machine setups:
$2,400 per setup × 50 setups, 100 setups.... $120,000 $ 240,000
Special processing:
$15 per MH × 12,000 MHs ... 180,000 —
Problem 8-26 (continued)
b. Before we can determine the unit product cost under activity-based
costing, we must first take the overhead costs applied to each model
in part 2(a) above and express them on a per-unit basis:
Total overhead cost applied (a)... $615,000 $1,185,000
Number of units produced (b)... 5,000 30,000
Manufacturing overhead cost per unit (a) ÷ (b)... $123 $39.50
With this information, the unit product cost of each model under ac-
tivity-based costing would be computed as follows:
Direct materials ... $72.00 $50.00
Direct labor:
$10 per DLH × 1.8 DLHs, 0.9 DLHs ... 18.00 9.00
Manufacturing overhead (above)... 123.00 39.50
Total unit product cost ... $213.00 $98.50
Comparing these unit cost figures with the unit costs in Part 1(b), we
find that the unit product cost for Model X200 has increased from
$180 to $213, and the unit product cost for Model X99 has decreased
from $104 to $98.50.
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