***Below is the solution sheet
Required: Using the given information below, allocate the $830,000 of production overhead to the three products using activity-based costing (ABC) and determine the product cost using ABC. Use the worksheet at the first tab in this workbook. Type in your solution and save and submit this workbook. Document your computations in the worksheet in a manner that the reader can easily and clearly understand. (See the letters used in the columns in the Small Company example.) Show the cost per unit of the activity driver (to the nearest penny) as part of you solution worksheet. To check your work, make sure the total overhead allocated to the three products equals the $830,000 of overhead that you set out to allocate. Pennsylvania Manufacturing Company (PMC) produces three children's drawing/painting objects: chalk, markers, and finger paint. Traditionally, management has applied overhead to the products using direct labor hours as the allocation base. Under traditional costing, production information and product cost is: Chalk Markers Fingerpaint Total Units produced 6,000,000 450,000 200,000 Direct Labor Hours 5,000 2,700 3,300 11,000 Manufacturing Overhead per Direct Labor Hour ($830,000/11,000) $ 75.455 Direct Materials $ 115,000 $ 175,000 $ 90,000 $ 380,000 Direct Labor 50,000 27,000 33,000 110,000 Manufacturing Overhead 377,273 203,727 2 49,000 830,000 Total Cost $ 542,273 $ 405,727 $ 372,000 $ 1,320,000 Direct Materials per unit 0.02 $ 0.39 $ 0.45 Direct Labor per unit $ 0.01 $ 0.06 $ 0.17 Manufacturing Overhead per unit $ 0.06 $ 0.45 $ 1.25 Total Cost per unit $ 0.09 $ 0.90 $ 1.86 For application of activity-based costing (ABC), management has broken the overhead down into four activity cost pools and identified activity (cost) drivers for each pool as follows: Overhead Activity (Cost) Driver Description Handle and move materials $ 100,000 Pounds moved Schedule production 30,000 Number of production orders Clean and setup machines 200,000 Number of setups Run machines 500,000 Machine hours Totals $ 830,000 Activity (Cost) Driver Chalk Markers Fingerpaint Pounds moved 250,000 150,000 100,000 Number of production orders 20 50 100 Number of setups 80 100 Machine hours 6,000 2,000 500 To save you busy work, the overhead and activity drivers have been placed on the solution sheet at the first tab of this workbook. See the required at the top of the page. 250 Pennsylvania Manufacturing Company Activity-Based Costing Overhead Allocation and Product Cost Determination For the Year Ended XXXX Overhead (a) Activity (Cost) Drivers Chalk Markers Fingerpaint (c) (d) Activity Center (b) 150,000 50 Handle and move materials Schedule production Clean and setup machines Run machines Totals 100,000 30,000 200,000 500,000 830,000 250,000 20 250 6,000 100,000 100 100 500 2,000
