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Traditional and Activity-Based Costing Methodology

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a) Predetermined...

$830,000 ÷ 100,000 hrs. = $8.30 per machine hour

(b) Manufacturing cost per stair under traditional costing:

Direct materials $103,600
Direct labor  112,000
Overhead (14,500 X $8.30)  120,350
Total cost of 280 stairs $335,950

Cost per stair ($335,950 ÷ 280)  $1,199.82

(c) Manufacturing cost per stair under activity-based costing:

Computation of Activity-Based Overhead Rate

Activity Cost Pool Estimated
Overhead
÷ Total
Estimated Drivers
= Activity-Based
Overhead Rate

Purchasing
Handling materials
Production
Setting up machines
Inspecting
Inventory control
Utilities $  57,000
   82,000
   210,000
   85,000
   90,000
   126,000
   180,000
$ 830,000     600 Orders
  8,000 Moves
100,000 D/L Hours
  1,250 Setups
  6,000 Inspections
 168,000 Components
 90,000 Sq. ft. $95.00 per order
$10.25 per move
$2.10 per D/L hour
$68.00 per setup
$15.00 per inspection
$.75 per component
$2.00 per sq. ft.

Assignment of Overhead to Order of 280 Stairs

Activity Cost Pool Expected
Use of Driver
X Activity-Based
Overhead Rate
=
Cost Assigned

Purchasing
Handling materials
Production
Setting up machines
Inspecting
Inventory control
Utilities     60 Orders
   800 Moves
5,000 D/L Hours
   100 Setups
   450 Inspections
 16,000 Components
 8,000 Sq. ft. $95.00
$10.25
$2.10
$68.00
$15.00
$.75
$2.00 $  5,700
  8,200
  10,500
  6,800
  6,750
  12,000
  16,000
Total overhead assigned $65,950

Chapter 4 Problem 4-3A (Continued)

Total manufacturing cost per stair under ABC:

Direct materials $  103,600
Direct labor 112,000
Overhead   65,950
Total cost of 280 stairs $  281,550

Total cost per stair (281,550/280) $1,005.54

(d) The difference between the traditional cost and the activity-based cost per unit of $194.28 or ($1,005.54 vs. $1,199.82) is not great in amount but—xx.3%...

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Solution Summary

The attached MS Word document contains descriptions and examples on traditional and activity-based costing methods.

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Answer to (d):

The difference between the traditional cost and the activity-based cost per unit of $194.28 or ($1,005.54 vs. $1,199.82) is not great in amount but? a difference of 19.3% in the price of ...

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