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Calculating Activity Based Costing

Consider the following table:

Product Line Sales$ Materials Labor
Deep Draw 500 50 100
Stock Modified 500 60 90
Steel 500 70 80
Micrite 500 80 70
Consumer Mod 500 90 60
Valueline 500 100 50
Totals 3,000 450 450

Manufacturing Overhead 1,800

The $1800 of overhead breaks down according to the following schedule:

Distribution of Overhead
Department Amount Comments
Quality 300 Only Required for Deep Draw, Steel and Micrite Products
Engineering 450 Used by all departments 50% by Micrite
Purchasing 250
Material Control 150
Operations Management 650
Total 1800

Management's stated goal is to focus its marketing and sales efforts on product lines that are the most profitable. Based on this information develop something approaching an ABC costing system. What assumptions will you have to make? Based on your calculations what product lines should management focus on growing? Are there any that you would suggest shutting down? What other information might be helpful?

See attached file for full problem description.


Solution Preview

We will assume that cost incurred in Quality Department is equally divided among Deep Draw, Steel, and Micrite Products. For Engineering Department, 50% of cost incurred is used by Micrite. For costs incurred in Purchasing, Material Control, and Operations Management departments, they ...

Solution Summary

This solution is comprised of a detailed explanation to calculate activity based costing for the company in text file.