Calculating Activity Based Costing
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Consider the following table:
Costs
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 Managemen 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.
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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 ...
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