Q 1 Description

DFC Inc. has budgeted manufacturing overhead costs of $2,190,000. It has allocated overhead on a plant-wide basis to its two products (Soft Wood and Hard Wood) using machine hours, which are estimated to be 109,000 for the current year. The company has decided to experiment with activity based costing and has created five activity cost pools and related activity cost drivers as follows:

Activity Centre

Cost Driver

Estimated Overhead

Expected Activity

Material Handling

Number of Moves

$225,000

28,000 moves

Purchase Orders

Number of Orders

$215,000

3,750 orders

Product Testing

Number of Tests

$450,000

7,350 Tests

Machine Set-Up

Numbver of Setups

$530,000

6,800 set-ups

Machining

Machine Hours

$770,000

75,000 machine hours

Each unit of the product requires the following:

Soft Wood

Hard Wood

Direct Material Costs

$270

$195

Direct Labour Costs

$150

$65

Purchase Orders

2

5

Machine Set-Up

3

6

Product Testing

6

6

Machining

35

55

Material Handling

4

4

Required:

1. Under traditional costing using machine hours, calculate the total manufacturing cost per unit of both products

2. Calculate the total manufacturing cost per unit for both products under ABC.