3. a. The overhead applied to each product can be determined as follows:
The Deluxe Model
Predetermined (a)
(a) × (b)
Overhead
Activity Cost Pool
Overhead Rate (b)
Activity
Applied
Purchasing ... $340 per purchase order 200 purchase orders $ 68,000
Processing... $5.20 per machine-hour 20,000 machine-hours 104,000
Scrap/rework...$189.50 per order 1,000 orders 189,500
Shipping... $150 per shipment 250 shipments 37,500
Total overhead cost ... $399,000
Manufacturing overhead cost per unit = $399,000 ÷ 5,000 units = $79.80 per unit
The Regular Model
Purchasing ... $340 per purchase order 400 purchase orders $136,000
Processing... $5.20 per machine-hour 15,000 machine-hours 78,000
Scrap/rework...$189.50 per order 1,000 orders 189,500
Shipping... $150 per shipment 650 shipments 97,500
Total overhead cost ... $501,000
Manufacturing overhead cost per unit = $501,000 ÷ 40,000 units = $12.53 per unit
Problem 8-22 (continued)
b. The unit product cost of each model under an activity costing ap-
proach would be:
Deluxe Regular
Direct materials... $ 40.00 $25.00
Direct labor... 14.00 7.00
Manufacturing overhead (above) .. 79.80 12.53
Total unit product cost... $133.80 $44.53
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