1. Economics
2. Applied Economics
3. Labour Economics
4. 85715

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Overhead costs using traditional costing and ABC.

(See attached file for full problem description)

(a) Predetermined...

$xxx ÷ xxx hrs. = $xx.xx per machine hour

(b) Manufacturing cost per stair under traditional costing:

Direct materials $xxx,000
Direct labor  xxx,000
Overhead (xxx X $xxx)  xxx,350
Total cost of 280 stairs $xxx,950

Cost per stair ($xxx ÷ 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 $  xxx
   xxx
   xxx
   xxx
   xxx
   xxx
   xxx
$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. $xx per order
$xx.xx per move
$x.xx per D/L hour
$xx per setup
$xx per inspection
$.xx per component
$x 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. $xx
$xx.xx
$x.xx
$xx
$xx
$.xx
$x $  xxx
  xxx
  xxx
  xxx
  xxx
  xxx
  xxx
Total overhead assigned $65,950

Chapter 4 Problem 4-3A (Continued)

Total manufacturing cost per stair under ABC:

Direct materials $  xxx
Direct labor    xxx
Overhead    xxx
Total cost of 280 stairs $  281,550

Total cost per stair $xxx

(d) The difference between the traditional cost and the activity-based cost per unit of $xxx or ($xxx vs. $xxx) is not great in amount but?xx.3%...

Attachments

• P4-3A.doc