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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