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"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
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:

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
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

\$2.49