Question
Cogswell Cogs, Inc. estimates its overhead for the upcoming year to be $1,693,500 and will use machine hours as its base to apply overhead and
Cogswell Cogs, Inc. estimates its overhead for the upcoming year to be $1,693,500 and will use machine hours as its base to apply overhead and estimates total machine usage will be 112,000 hours and estimates direct labor hours will be 43,500 hours. Cogswell makes three different models of its product Basic, Premium and Deluxe. The company anticipates making 10,000 units of Basic, 5,000 units of Premium and 1,000 units of Deluxe. The following information relates to Direct Material and Direct Labor for each unit for each model
Basic Premium Deluxe
Direct Material 5 pounds @ $4/pound 8 pounds @ $4.20/pound 10 pounds @ $4.40/pd
Direct Labor 2.5 hours @ $16/hour 3 hours @ $16/hour 3.5 hours @ $18/hour
Overhead 6 machine hours 8 machine hours 12 machine hours
Mr. Cogswell, the President and CEO of Cogswell Cogs, Inc. has been reading about Activity-based Costing (ABC) and thinks that perhaps the company should adopt it. He asked you to gather up information regarding the cost drivers in the factory and here is what you found
Costs Cost Driver Basic Premium Deluxe
Material handling $36,000 Deliveries 50 deliveries 25 deliveries 15 deliveries
Setup costs $66,000 Production runs 24 runs 16 runs 10 runs
Supervisors salaries $550,000 DL hours 55,000 hours 40,000 hours 30,000 hours
Utilities $660,000 Machine hours 54,000 hours 48,000 hours 18,000 hours
Inspection costs $72,000 Inspection hours 2000 hours 1000 hours 600 hours
Rent $220,000 Floor space 4,000 feet 7,000 feet 9,000 feet
Engineering $134,000 Engineering hours 2,000 hours 3,000 hours 5,000 hours
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Using ABC costing, calculate total overhead dollars to be charged to each product, then at bottom calculate the total cost per unit, circle your final answer.
Cost Pools Basic Premium Deluxe
Material handling
Setup costs
Supervisors salaries
Utilities
Inspection costs
Rent
Engineering
Total Overhead in $
Total Overhead per unit
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What is TOTAL COST per unit for each model using ABC?
Basic Premium Deluxe
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