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Galvest Industries: ABC vs traditional overhead allocation

Activity-based costing versus traditional overhead allocation methods.

Galvest Industries manufactures and sells custom made windows. Its job costing system was designed using and activity-based costing approach. Direct materials and direct labor costs are accumulated separately, along with information concerning three manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $20per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 50,000 units for the year, which will require 200,000 direct labor hours.

see attached for better formatting

Activity Budgeted Cost for 2010 Cost Driver Used Cost
(Cost Driver) As Allocation Base Allocation Rate
Materials handling $325,000 Number of parts used $0.25 per part
Cutting and lathe work 2,340,000 Number of parts used 1.80 per part
Assembly & Inspection 5,000,000 Direct labor hours 25.00 per hour
The following production, cost, and activities occurred during the month of March:
Units Produced Direct Materials Cost Number of Parts Used Direct Labor Hours
3,800 $ 142,000 83,600 17,180

Calculate the total manufacturing costs and cost per unit of the windows produced during the month of March (using the activity based costing approach).

Ignore questions 2 and 3.

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Solution Summary

ALERT: This posting only answers the first of the attached questions. Your tutorial is in Excel (attached) showing you the computation of materials, labor and the three types of overhead during March to get the total manufacturing costs an the cost per unit for activity based costing. Click on the cells to see the calculations.