Explore BrainMass
Share

Explore BrainMass

    Manufacturing overhead allocation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    "The PurWater System Company manufacutures two models of a particular water purification system. For 2005, the company wants to allocate manufacturing overhead using activity-based-cost (ABC) allocation methods.

    Based on a thourough study of their manu"
    2005 Cost Driver
    Fixed Overhead Used As
    Activity Budgeted Costs Application Base
    a. Forging casings $1,250,000 Pounds of steel used
    b. Filter packing 750,000 Packing materials used
    b. Assembly 300,000 Direct labor hours
    c. Packaging and shipping 100,000 Number of orders shipped
    $2,400,000

    The company is now preparing its budget for 2005. The following predictions are available:

    MacroFilter MicroFilter
    Model Model
    Units to be produced........................ 10,000 8,000
    Pounds of steel per unit................................................ 3 lbs. 5 lbs.
    Cost of steel per pound.................................... $14.00 $14.00
    Filter materials per unit....................................... 8 lbs. 12 lbs.
    Cost of filter materials per pound............................... $20.00 $30.00
    Direct labor hours per unit.................. 3 hrs. 4 hrs.
    Direct labor cost per hour................. $10.00 $14.00
    Machine hours per unit.................... 2 hrs. 3 hrs.
    Orders expected to be shipped................................ 2,000 4,000

    Actual production for the month of September 2005 was:
    Number of units produced 800 750
    Number of orders shipped 200 350

    Requirements
    Using activity based cost allocation:
    1. Compute the allocation rate for each activity using activity-based-cost (ABC) allocation.
    2. Allocate the overhead to each model using ABC allocation for the month of September production.
    3. Determine the total cost per unit of production for the month of September.

    Requirement 1 - Allocation rate for each activity:
    Forging casings Rate per pound

    Filter packing Rate per pound

    Assembly Rate per DL hr.

    Packaging and shipping Rate per order

    Requirement 2 - Allocation of overhead to each model:
    Forging casings MacroFilter MicroFilter
    OH allocation per model

    Filter packing MacroFilter MicroFilter
    OH allocation per model

    Assembly MacroFilter MicroFilter
    OH allocation per model

    Packaging and shipping MacroFilter MicroFilter
    OH allocation per model
    Requirement 3 - Total cost per unit:

    © BrainMass Inc. brainmass.com October 9, 2019, 5:32 pm ad1c9bdddf
    https://brainmass.com/business/accounting/manufacturing-overhead-allocation-60259

    Solution Preview

    "The PurWater System Company manufacutures two models of a particular water purification system. For 2005, the company wants to allocate manufacturing overhead using activity-based-cost (ABC) allocation methods.

    Based on a thourough study of their manu"
    2005 Cost Driver
    Fixed Overhead Used As
    Activity Budgeted Costs Application Base
    a. Forging casings $1,250,000 Pounds of steel used
    b. Filter packing 750,000 Packing materials used
    b. Assembly 300,000 Direct labor hours
    c. Packaging and shipping 100,000 Number of orders shipped
    $2,400,000

    The company is now preparing its budget for 2005. The following ...

    Solution Summary

    This explains the steps of manufacturing overhead allocation

    $2.19