Remote Mouse : Number of units Direct materials per unit Direct labor per unit 20,000 31 6

$ $

Cost Pool Materials ordering Materials inspection Equipment setup Quality control Other Total manufacturing overhead

Cost $ $ $ $ $ $ 800,000 400,000 2,000,000 900,000 15,000,000 19,100,000

Required : 1. Calculate the overhead rate per unit of activity for each of the five cost pools - Materials ordering $800,000 / 20,000 - Materials inspection $400,000 / 20,000 - Equipment setup $2,000,000 / 20,000 - Quality control $900,000 / 20,000 - Other $15,000,000 / 20,000 2. Calculate the total overhead assigned to the production of the Remote Mouse - Materials ordering $8 x 1,000 - Materials inspection $200 x 300 - Equipment setup $20,000 x 1 - Quality control $225 x 400 - Other $1,5 x 120,000 Total overhead cost 3. Calculate the overhead cost per unit for the Remote Mouse overhead cost / unit = total overhead cost / production = $358,000 / 20,000 $ 17.90 4. Calculate the total unit cost for the Remote Mouse - Number of unit 20,000 - Total direct material cost $ 620,000 - Total direct labor cost $ 120,000 - Total overhead cost $ 358,000 Total unit cost $ 1,098,000

5. Suppose that Computech allocated overhead by a traditional production volume-based method using d

Determine the overhead the overhead rate per direct labor dollar and the per unit overhead assigned t and the activity-based costing approach Manufacturing overhead Direct labor cost Rate - Number of units - Total direct material cost - Total direct labor cost - Overhead Total cost $ $ $ 19,100,000 10,000,000 1.91 20,000 620,000 120,000 229,200 969,200

$ $ $ $

ABC....why? The problem with Traditinal costing is that it can easily overallocate overhead to cost objectives. Traditio Derek Coleman

Cost Driver Number of purchase orders Number of receiving reports Number of setup Number of inspections Direct labor cost

All products 100,000 orders 2,000 receiving report 100 setups 4,000 inspections 10,000,000 direct labor

$ $ $ $ $

Cost per driver 8.00 200.00 20,000.00 225.00 1.50

f activity for each of the five cost pools $ $ $ $ $

40 20 100 45 750

to the production of the Remote Mouse $ 8,000 $ 60,000 $ 20,000 $ 90,000 $ 180,000 $ 358,000

or the Remote Mouse

erhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool.

rate per direct labor dollar and the per unit overhead assigned to the Remote Mouse. Discuss the difference in cost allocations between th

hat it can easily overallocate overhead to cost objectives. Traditional costing is production volume driven so its would be easy but yet inacc

Remote Mouse 1,000 300 1 400 120,000

llocation base and one cost pool.

uss the difference in cost allocations between the traditional method

volume driven so its would be easy but yet inaccurate to assign a

Example 1 Inspection cost Number of worker Number of units Rate $ 2,500,000 40 1,000,000

2.50 per inspection for purpose of allocating inspectio

Lacet produces 20.000 Model ZX disk drive Inspected 3 times How much of the total $2,000,000 inspection cost will be allocated to the model ZX? Total inspection Inspection cost allocated Total 20,000 x 3 $ 2.50 x 3 20,000 x $7,50 $ $ $ 60,000 7.50 150,000

ction for purpose of allocating inspection cost to product

Manufacturing overhead Labor cost Rate Estimated cost items Annual cost Setup cost $ 4,000,000 Material Handling cost $ Depreciation of equipment Others $ $ 2,000,000 10,000,000 24,000,000

$ $ $

40,000,000 8,000,000 5 Cost driver Number of setups Estimated Annual Value 1,000 2,000 20,000 2,000

Number of material requisitions Number of machine hours Number of work-stations used in production of a product

TRADITIONAL APPROACH Model 250 Spade Number of units Sales revenue Direct labor Direct material Overhead Total cost Gross profit Cost per unit Gross profit per unit Gross prppfit as a % of sales $ $ $ $ $ $ $ $ 85,000 765,000 91,800 153,000 459,000 703,800 61,200 Model 900 Mower 800 $ 240,000 $ 12,000 $ 48,000 $ 60,000 $ 120,000 $ 120,000 150 150.00 50%

8.28 $ 0.72 $ 8%

Estimated Annual Value $ for all product produced $ $ workstations used $ for all product

Cost per driver unit 4,000 per setup 1,000 500 8,000 per requisition per machine hour per workstation

Spade 2 3 40 1

ABC APPROACH Model 250 Spade Model 900 Mower 85,000 800 $ 91,800 $ 12,000 $ 153,000 $ 48,000 $ $ $ $ $ $ $ $ $ 8,000 3,000 20,000 8,000 39,000 283,800 $ $ $ $ $ $ 20,000 50,000 50,000 120,000 240,000 300,000 375.00 300.00 (75.00)

Number of units Direct Labor Direct material Overhead Setup cost Material Handling cost Depreciation Others Total overhead Total Cost Cost per unit Selling price per unit Gross profit Gross profit as a % of sales

3.34 $ 9.00 $ 5.66 $

Mower 5 50 100 15