Activity Based Costing Project

Cartech Manufacturing Product Costs

You, as the staff accountant for Wake Consulting Group, have uncovered the following costs and activities associated with the two products.

	Part 271	Part 342
Production	500,000	100,000
Selling Price	$31.86	$24.00
Prime costs per unit	$9.53	$8.26
Number of production runs	100	200
Receiving orders	400	1,000
Machine hours	125,000	60,000
Direct labor hours	250,000	22,500
Engineering hours	5,000	5,000
Material moves	500	400

Overhead is allocated using a plant-wide rage based on direct labor hours.

Preliminary analysis of costs by Wake Consulting Group revealed that similar costs can be categorized into the following cost pools. Setup costs are costs that occur each time a new production run is made. They involve retooling and reconfiguring the machines and technology. Material handling costs include the equipment and personnel required to transport materials from supplier trucks to the machines. Typically, materials are taken to a storage area before being transported to machines. Each production run will need new materials and materials may also be transported during production runs. Machine costs primarily include depreciation and machine maintenance. Although the machines are depreciated using accelerated depreciation schedules, typically the machine wear out from use and are replaced before they become obsolete. Receiving costs include the costs of clerical and technical help associated with the processing of each order received from a customer. Engineering costs include the technical support staff that implement design changes in the part, manage processes to maintain quality, and provide technical information on the product. The engineering staff maintain a record of the amount of time spent on each product. General plant costs include all the other administrative costs not included in the other cost pools.

Overhead Cost Pools
Setup costs	$240,000
Material handling costs	$900,000
Machine costs	$1,750,000
Receiving costs	$2,100,000
Engineering costs	$1,500,000
General plant costs	$500,000
Total	$6,990,000

ABC Project-Analysis

Part 1: Compute overhead and gross margin using traditional costing.
	Per unit	Part 271	Part 342
	Overhead	$	$
	Gross Margin:
	Selling Price	$	$
	Prime costs	$	$
	Overhead	$	$
	Gross margin	$	$
	Total Profit	$	$

Part 2: Select the best cost driver and compute overhead rates for each cost pool.
	Cost Pool	Cost Driver	Overhead Rate
	Setup costs		$
	Material handling costs		$
	Machine costs		$
	Receiving costs		$
	Engineering costs		$
	General plant costs		$

Part 3: Compute overhead and gross margin using Activity-based costing.
		Per unit		Part 271		Part 342
		Overhead		$		$
		Gross Margin:
		Selling Price		$		$
		Prime costs		$		$
		Overhead		$		$
		Gross margin		$		$
		Total Profit		$		$
Part 4: Recommendations - Increase in price for Product 342 by 25%.
	Per unit		Part 271		Part 342
	Selling Price		$		$
	Prime costs		$		$
	Overhead		$		$
	Gross margin		$		$
	Total Profit		$		$

Part 5: Another reasonable recommendation to improve profitability.
Explain your recommendation here-
	Per unit	Part 271	Part 342
	Selling Price	$	$
	Prime costs	$	$
	Overhead	$	$
	Gross margin	$	$
	Total Profit	$	$

Part 6: Another reasonable recommendation to improve profitability.
Explain your recommendation here-
	Per unit	Part 271	Part 342
	Selling Price	$	$
	Prime costs	$	$
	Overhead	$	$
	Gross margin	$	$
	Total Profit	$	$