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Accounting for decision making and control: Chapter

P 11-3: GAMMA

GAMMA produces over a hundred different types of residential water faucets as its

Delta, Florida plant .This plant uses activity -based costing to calculate product costs.

The following table summarizes the plant's overhead for the year and the cost drivers

Used for each activity center:

Summary of plant Overhead and Activity Centers

Total cost
(millions
Activity center of dollars) Cost driver Amount of cost Activity cost per unit
&nbs p; &n bsp; Driver of cost drive

Materials handling $20.8 Direct materials $130 million $ 0.16

Purchasing 13.8 part numbers 800 $17,250

Set-up labor 6.8 &n bsp;Batches 500 $13,600

Engineering 10.9 Number of products 125 $87,200

Occupancy 16.2 &nb sp;Direct labor $ 90 million $0.18

----------------
Total plant overhead $ 68.5
----------------

One faucet model GAMMA manufactures is Explorer .Its total product cost is as follows:

Direct labor ; &nb sp; $ 121,700

Direct materials & nbsp; ; 90,500

Materials handling $ 90,500 $ 0.16 14,480

Purchasing 9 17,250 &nb sp; 155,250

Setup ; 8 13,600 &n bsp; 108,800

Engineering ; 1 87,200 &nb sp; 87, 200

Occupancy $121,70 0 $0.18 &nbs p; 21,906
&nbs p; &n bsp; ---------------------

Total cost &nbs p; $599,836

Number of units manufactured &nbs p; 12,500
&nbs p; &n bsp; ---------------------

Product cost per unit &nbs p; $ 47.99

&nbs p; &n bsp; ----------------------

Required Question:

Calculate the product cost per unit of the Explorer faucet using absorption costing where plant

Overhead is assigned to products using direct labor dollars.

Solution Summary

Accounting for decision making and controls are examined.

$2.19