Share
Explore BrainMass

# 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

----------------
----------------

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