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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:

  1. 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.

  2. 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

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