1. Overhead rates:
(a)
(a) ÷ (b)
Estimated
Overhead
Predetermined Overhead
Costs (b) Expected Activity
Rate
Purchasing... $12,000 200 orders 1 $60 per order
Material handling... $15,000 300 receipts 2 $50 per receipt
Production orders and
equipment setup... $20,250 250 setup hours 3 $81 per setup hour
Inspection ... $16,000 800 inspection hours 4 $20 per inspection hour
Frame assembly ... $8,000 1,600 assembly hours $5 per assembly hour
Machine related... $30,000 10,000 machine-hours 5 $3 per machine-hour
1 40 + 60 + 100 = 200 orders.
2 60 + 80 + 160 = 300 receipts.
3 Standard: 50 setups × 1 hour per setup ... 50 hours
Specialty: 100 setups × 2 hours per setup ... 200 hours
Total setup hours ... 250 hours
4 300 + 500 = 800 hours.
5 Standard: 10,000 units × 0.5 hours per unit... 5,000 hours
Specialty: 2,500 units × 2 hours per unit... 5,000 hours
Total machine-hours... 10,000 hours
Case 8-34 (continued)
Overhead cost charged to each product:
Standard Specialty
Activity Amount Activity Amount
Purchasing @ $60 per order:
Leather ... 34 $ 2,040 6 $ 360
Fabric ... 48 2,880 12 720
Synthetic... 0 0 100 6,000
Material handling @ $50 per receipt:
Leather ... 52 2,600 8 400
Fabric ... 64 3,200 16 800
Synthetic... 0 0 160 8,000
Production orders and equipment
setup @ $81 per hour ... 50 4,050 200 16,200
Inspection @ $20 per hour... 300 6,000 500 10,000
Frame assembly @ $5 per hour ... 800 4,000 800 4,000
Machine related @ $3 per hour... 5,000 15,000 5,000 15,000
Total overhead cost ... $39,770 $61,480
Manufacturing overhead cost per unit of product:
Standard: $39,770 ÷ 10,000 units = $3.98 per unit (rounded)
Specialty: $61,480 ÷ 2,500 units = $24.59 per unit (rounded)
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