Question
The Acme Printing Company prints limited edition art books with production runs of 15,000 to 100,000. It has recently adopted an activity-based costing (ABC) system
The Acme Printing Company prints limited edition art books with production runs of 15,000 to 100,000. It has recently adopted an activity-based costing (ABC) system to assign manufacturing overhead to products. The following data relate to one product, The History of Art, and the ABC cost pools:
History of Art: Annual production 40,000 units
Direct materials per unit $37
Direct labour per unit $8
Cost Pool Cost Cost Driver
Materials ordering $ 840,000 Number of purchase orders
Materials inspection 525,000 Number of receiving reports
Equipment setup 2,500,000 Number of setups
Quality control 1,000,000 Number of inspections
Other 25,000,000 Direct labour cost
Total manufacturing overhead $29,865,000
Annual activity information related to cost-drivers:
Cost Pool All Book The History of Art
Materials ordering 120,000 orders 1,200
Materials inspection 2,100 receiving reports 315
Equipment setup 125 setups 1
Quality control 5,000 inspections 500
Other $12,500,000 in direct labour $320,000
Required:
Calculate the overhead rate per unit of activity for each of the five cost pools.
Calculate the total overhead assigned to the production of The History of Art.
Calculate the overhead cost per unit for The History of Art.
Calculate the total unit cost for The History of Art.
Suppose Acme Printing Company allocates overhead by a traditional production volume-based method using direct labour dollars as the allocation base and one cost pool. Determine the overhead rate per direct labour dollar and the per unit overhead assigned to The History of Art. Comment on the difference in cost allocations between the traditional method and the activity-based costing approach.
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