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    Mitsu Corporation Activity Based Accounting

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    Please help complete the attached exercise

    Mitsu Corporation produces two types of flat screen televisions. The standard televisions are designed for durability. The company recently began producing the higher quality, high grade model to appeal to dedicated watchers. Since the introduction of the high grade product, profits have steadily declined. Management believes that the accounting system might not accurately allocating costs to products.
    Management has asked you to investigate the cost-allocation problem. You find that manufacturing overhead is currently assigned to products based on direct labor costs in the products. For your investigation, you have data from last month. Last month's manufacturing overhead was $3,000,000 based on the production of 3,600 standard units and 1,200 high grade units. Direct labor and direct material costs were as follows:
    Standard High Grade Total
    Direct Labor ..................$1,740,000 $ 660,000 $2,400,000
    Direct Material............. $1,400,000 1,200,000 $2,600,000
    Management believes that overhead costs are caused by three cost drivers. The cost drivers and their costs for last month were as follows:
    Activity Level
    Cost-Driver Base to each product if direct labor cost had been used to allocate overhead? Cost Assigned Standard High Grade Total
    Number of production runs..........................$1,200,000 40 10 50
    Quality tests performed................................. 1,500,000 12 18 30
    Shipping orders processed................................300, 000 100 50 150
    Total manufacturing overhead $3,000,000
    a. How much of the overhead will be assigned to each product if these three cost-driver bases are used to allocate overhead? What is the total cost per unit produced for each product?
    b. How much of the overhead was assigned to each product if direct labor cost had been used to allocate overhead? What is the total cost per unit produced for each product? Is total overhead cost affected by the choice of traditional or ABC costing for overhead?
    c. How might the results from using activity-based costing in requirement (a) help management understand Mitsu's declining profits?

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    4.36
    Activites and Resources Standard High-Grade Total
    Units produced 3,600 1,200
    Direct labor $1,740,000 $660,000 $2,400,000
    Direct material 1,400,000 1,200,000 2,600,000
    Manufacturing overhead 3,000,000
    Total costs $8,000,000
    Cost driver bases Standard High-Grade Total Costs Assigned
    Number of production runs 40 10 50 $1,200,000
    Quality tests performed 12 18 30 1,500,000
    Shipping orders processed 100 50 150 300,000
    Total manufacturing overhead $3,000,000

    Comparative Costing Analyses
    a. ABC (Costs traced to products by activities)
    Production-run cost-driver rate per production run
    Quality test cost-driver rate per quality test
    Shipping orders cost-driver rate per shipping order
    Product costs Standard High-Grade Total
    Direct labor
    Direct material
    Manufacturing overhead
    Total cost
    Cost per unit
    b. Traditional (Direct-labor based) costing analysis
    Direct-labor based allocation rate of direct labor cost
    Product costs Standard High-Grade Total
    Direct labor
    Direct material
    Manufacturing overhead
    Total cost
    Cost per unit
    Extra: Reconciliation of overhead costs
    ABC Traditional
    Total overhead activity costs
    Overhead activity traced or applied
    Under (Over) applied overhead

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    https://brainmass.com/business/accounting/mitsu-corporation-activity-based-accounting-386835

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    Solution Summary

    Solution is put into Excel grid. You can get the formula by clicking on the cells. We didn't have rates based on estimated overhead and then applied based on actual activity so there was no over or under applied overhead.

    $2.19

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