Question
Question 2: Activity-Based Costing (ABC) Becton Dickinson is the biggest ventilator manufacturer in the world. The company has received a special offer from the government
Question 2: Activity-Based Costing (ABC)
Becton Dickinson is the biggest ventilator manufacturer in the world. The company has received a special offer from the government to produce two models of the ventilators: A95 and B95 for Covid 19 patients. Estimates so far show that about 6% of people who have COVID-19 get critically sick and need to use the ventilator.
You have been asked to prepare a costing report based on traditional absorption costing (using the number of units for allocating overhead costs) and activity-based costing (ABC) to determine the accurate production costs for these two new ventilators. The available information concerning the budgeted operations appears below:
Unit cost information | A95 | B95 |
Budgeted units to produce | 10,000 | 4,000 |
Number of parts needed (per unit) | 50 | 60 |
Price of parts (per part) | $500 | $600 |
Direct labour time needed to produce per unit (minutes) | 20 | 22 |
Labour hourly rate | $90 | $120 |
From the centres management information system, you extract the following information on activities, costs, and activity drivers for the current period:
Activity | Expected Cost |
Machine set-up (number of set ups) | $8,000,000 |
Materials ordering (number of orders) | $6,000,000 |
Machine hours (hours) | $5,400,000 |
Injection moulding (batches) | $3,500,000 |
Number of Product design | $1,000,000 |
Product movements (number of movements) | $4,500,000 |
Customer order (number of orders) | $360,000 |
Online monitoring security (hours) | $350,000 |
Total Overhead | $29,110,000 |
Activity drivers | Cost hierarchies | A95 | B95 |
Number. of machine set-ups | Batch level | 150 | 250 |
Number. of material orders | Batch level | 1,400 | 2,600 |
Machine hours | Batch level | 800 | 1,000 |
Injection moulding (batches) | Batch level | 15 | 20 |
Number of Product design | Product level | 20 | 30 |
Number of product movements | Product level | 6,000 | 9,000 |
Customer order (number of orders) | Customer level | 800 | 1,000 |
Online monitoring Security (hours) | Facility level | 3,500 | 3,500 |
4
Question 2 continued:
Required:
-
Compute the predetermined overhead rate under the absorption costing method and determine the full unit product cost of each product, round the unit costs and all other costs to 2 decimal places.
-
Determine the full unit product cost of each product using the activity-based costing approach and round the unit costs and all other costs to 2 decimal places.
Use actual numbers (with all decimal places) for all calculations but round the final answers to 2 decimal places when answering the numeric questions. Numeric answers must be presented without any explanation, bracket, $, or any positive (+) or negative (-) sign.
(Total marks for the question 48 marks)
You are required to answer the above questions in detail as follows on Canvas (you do not need to answer the above questions separately in another answer sheet):
EN | NO | Questions | Marks |
27 | 1 | How much is the overhead rate per unit for A95 under current traditional costing? | 3 |
28 | 2 | How much is the overhead rate per unit for B95 under current traditional costing? | 3 |
29 | 3 | How much is the full product cost per unit for A95 under current traditional costing? | 3 |
30 | 4 | How much is the full product cost per unit for B95 under current traditional costing? | 3 |
31 | 5 | How much is the Unit level cost rate (per unit) for A95 under ABC? | 3 |
32 | 6 | How much is the Unit level cost rate (per unit) for B95 under ABC? | 3 |
33 | 7 | How much is the Batch level overhead rate per unit for A95 under ABC? | 3 |
34 | 8 | How much is the Batch level overhead rate per unit for B95 under ABC? | 3 |
35 | 9 | How much is the Product level overhead rate per unit for A95 under ABC? | 3 |
36 | 10 | How much is the Product level overhead rate per unit for B95 under ABC? | 3 |
37 | 11 | How much is the Customer level overhead rate per unit for A95 under ABC? | 3 |
38 | 12 | How much is the Customer level overhead rate per unit for B95 under ABC? | 3 |
39 | 13 | How much is the Facility level overhead rate per unit for A95 under ABC? | 3 |
40 | 14 | How much is the Facility level overhead rate per unit for B95 under ABC? | 3 |
41 | 15 | How much is the Full unit cost per unit for A95 under ABC? | 3 |
42 | 16 | How much is the Full unit cost per unit for YB95 under ABC? | 3 |
Total marks for the question | 48 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started