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    Accounting for decision making and control: Chapter

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    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.

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    https://brainmass.com/business/business-policy-and-implementation/accounting-decision-making-control-chapter-458267

    Solution Summary

    Accounting for decision making and controls are examined.

    $2.19

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