Required: Using the given information below, allocate the $830,000 of production overhead to the three products using activity-based costing (ABC) and determine the product cost using ABC. Use the worksheet at the first tab in this workbook. Type in your solution and save and submit this workbook. Document your computations in the worksheet in a manner that the reader can easily and clearly understand. (See the letters used in the columns in the Small Company example.) Show the cost per unit of the activity driver (to the nearest penny) as part of you solution worksheet. To check your work, make sure the total overhead allocated to the three products equals the $830,000 of overhead that you set out to allocate. Pennsylvania Manufacturing Company (PMC) produces three children's drawing/painting objects: chalk, markers, and finger paint. Traditionally, management has applied overhead to the products using direct labor hours as the allocation base. Under traditional costing, production information and product cost is: Units produced Direct Labor Hours Chalk 6,000,000 5,000 Markers 450,000 2,700 Fingerpaint Total 200,000 3,300 11,000 Manufacturing Overhead per Direct Labor Hour ($830,000/11,000) $ 75.455 Direct Materials $ 115,000 $ 175,000 $ 90,000 $ 380,000 Direct Labor 50,000 27,000 33,000 110,000 Manufacturing Overhead 377,273 203,727 249,000 830,000 Total Cost $ 542,273 $ 405,727 $ 372,000 $1,320,000 Direct Materials per unit $ 0.02 $ 0.39 $ 0.45 Direct Labor per unit 0.01 $ 0.06 0.17 Manufacturing Overhead per unit $ 0.06 $ 0.45 $ 1.25 Total Cost per unit $ 0.09 $ 0.90 $ 1.86 For application of activity-based costing (ABC), management has broken the overhead down into four activity cost pools and identified activity (cost) drivers for each pool as follows: ABC Solution Sheet ABC Problem + A B C D E For application of activity-based costing (ABC), management has broken the overhead down into four activity cost 18 pools and identified activity (cost) drivers for each pool as follows: 19 20 Handle and move materials Overhead Activity (Cost) Driver Description $ 100,000 Pounds moved 21 Schedule production 22 Clean and setup machines 23 Run machines 30,000 Number of production orders 200,000 Number of setups 500,000 Machine hours 24 Totals $ 830,000 26 Activity (Cost) Driver 27 Pounds moved 28 Number of production orders 29 Number of setups 30 Machine hours Chalk 250,000 20 250 6,000 Markers 150,000 50 80 2,000 Fingerpaint 100,000 100 100 500 To save you busy work, the overhead and activity drivers have been placed on the solution sheet at the first tab of 32 this workbook. See the required at the top of the page. 33 34 35 36 F G 123 3 5 A B C D E F G Pennsylvania Manufacturing Company Activity-Based Costing Overhead Allocation and Product Cost Determination For the Year Ended XXXX Activity (Cost) Drivers Overhead Chalk Markers Fingerpaint 6 Activity Center (a) (b) (c) (d) 7 8 Handle and move materials 100,000 250,000 150,000 100,000 9 Schedule production 30,000 20 50 100 10 Clean and setup machines 200,000 250 80 100 11 Run machines 500,000 6,000 2,000 500 12 Totals 830,000 13 14 15 16 17 - ABC Solution Sheet ABC Problem +