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Cost drivers A Problem 2: Tebow B C D E Tebow Inc. manufactures three products and it is estimated that the following activity will
Cost drivers A Problem 2: Tebow B C D E Tebow Inc. manufactures three products and it is estimated that the following activity will take place during the next production period: Product A B C 0 Total output (units) Direct material costs per unit ($ Machine hours per uni Total machine hours worked 10,000 14 0.5 5,000 17 1.5 30,000 22 1 1,000 36,000 20,000 1,000 Indirect manufacturing overheads for the period are estimated at $360,000. Overheads are currently allocated to products using the total number of machine hours worked. The company is about to implement an activity-based costing (ABC) system and analysis of overhead has identified the following activity cost pools and cost drivers: Overhead cost pools Machine maintenance Set up costs Materials ordering Finishing activity Product testing Total overhead Product Machine hours worked - Number of set-ups Number of materials orders Number of finishing hours Number of product tests $ Activity-based cost drivers 153,000 Machine hours worked 62,100 Number of set-ups 89,100 Number of materials orders 21,600 Number of finishing hours 34,200 Number of product tests 360,000 A B C Total 5,000 30,000 1,000 36,000 3 6 9 18 200 1480 300 1,980 120 100 20 240 50 25 75 150
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