ABC and Traditional Problem

Manufacturing Overhead	Costs	Pool Allocation
Quality Control	100,000	Finishing
Indirect Labor Supervisor Salary	100,000	20% to Assembly, 80% to Finishing
Indirect Labor Janitorial Services	30,000	1/3 to each department/category
Other Indirect Labor	200,000	50% to Finishing, 50% to General
Depreciation on Machine	10,000	Assembly
Depreciation on Cutting Machine	10,000	Assembly
Rent/Taxes/Depreciation on Factory Building	30,000	1/3 to each department/category
Utilities	10,000	General
Miscellaneous Goody Bag Supplies	10,000	General
Total Overhead Costs

1. Create the cost pools for Finishing, Assembly and General
   1. Finishing _____________________
   2. Assembly _____________________
   3. General ________________________

2. Apply the rates based on direct labor hours for each pool. The general pool will use total direct labor hours.

Direct Labor Hours	Estimated Labor Hours Worked
Assembly Labor Hours	10,000
Finishing Labor Hours	20,000
Total Direct Labor Hours	28,000

Calculate the overhead rates

1. Finishing _____________________
2. Assembly _____________________
3. General ________________________

3. Apply the rate based on Activity Based Costing

Cost pool	Rate	Application	Applied Overhead
Assembly		50
Finishing		100
General		200
Total

4. Calculate the overhead rate assuming a volume based approach with total assembly hours as the cost driver.

5. If the total assembly hours used during the period is 50 hours, how much is the applied overhead?

6. If actual overhead is $2,550, which method would you use ( traditional ABC ) and why?

Process Costing:

1. Fill in the missing amount:

Work-in-process, June 1: 60,000

Work-in-process, June 30: ________

Units started in June: 20,000

Units completed in June: 50,000

2. Fill in the missing amount:

Work-in-process, June 1: 300,000

Work-in-process, June 30: 200,000

Units started in June: 100,000

Units completed in June: __________

1. Find the percentage of service department 1 cost that is allocated to service department 2

2. Find the percentage of service department 2 cost that is allocated to cups.

Use the weighted average approach and calculate the following:

Work in Process, June 1	6,000 Units
Units Started	5,000units
Work in Process, June 30 100% complete with regard to materials and 25% with regard to conversion costs	3,500 units

Beginning Costs:

Materials $37,000

Conversion Costs: $30,125

Cost Added During the period:

Materials: $40,000

Conversion Cost: $95,500

Weighted Average

• How many units are completed _________________

• What is the equivalent units with regard to materials and Conversion Costs

	Materials	Conversion Costs
Completed Units
Ending Units
Total

• What is the total cost for materials and Conversion Costs

__________________________, _________________________

• What is the cost per equivalent unit for materials & conversion costs _____________ +____________ = __________________

• Assign the costs to materials for
  • Completed Units ______________
  • Ending Units Materials _________________

Ending Units Conversion Costs _________________

Service Department Allocation Service Department 1: Administrative Service Department 2: IT Support Production Department Bags Production Department Cups Production Department Deluxe $200 $400 $200 $900 $400 Bags Cups Deluxe P3 16% 20% Service Department 1: Administrative Service Department 2: IT Support 20% 20% 20% 1 Allocate the service department costs to the production departments using the direct method Direct Method S1 Allocation S2 Allocation Production Department Bags Production Department Cups Production Department Deluxe Direct Costs Total Allocated $200 $800 $400 2 Allocate the service department costs to the production departments using the step method Direct Method S1 Allocation S2 Allocation Production Department Bags Production Department Cups Production Department Deluxe Direct Costs Total Allocated $200 $800 $400