Question
The company ABC produces a battery of X (3000 mAh)- for mobile phone & Y (15000 mAh) for power bank. Regular practice includes a normal
The company ABC produces a battery of X (3000 mAh)- for mobile phone & Y (15000 mAh) for power bank. Regular practice includes a normal cost system and a plant-wide overhead rate based on direct labour hours for allocating overhead costs. It is recommended to use activity-based costing to charge overhead by consultants.
The company expects to produce 5,000 batteries of X type and 3,000 batteries of Y type in 2018. Each X requires one direct labour hours to produce and each Y requires two hours to produce.
For production of batteries, the cost incurred is as follows:
Item (per unit) | X | Y |
Direct Material | $ 10 | $ 20 |
Direct Labour | $ 3 | $ 7 |
Estimated total Factory Overhead Data For 2018:
Activity | Overhead ($) | Volume Level |
Production Setups | $ 70,000 | 15 Set ups |
Material Handling | $ 50,000 | 1000 lbs |
Packaging and Shipping | $ 90,000 | 500 packs |
Total Factory Overhead | $ 210,000 |
|
Based on above analysis, following activities were estimated:
Activity | X | Y |
Manufacturing Setups | 5 setups | 10 setups |
Material Management | 400 lbs | 600 lbs |
Packaging & transport | 200 packs | 300 packs |
Based on the above data,
1. Using the plant-wide rate based on direct labour hours, calculate the cost of each product
2. Calculate the activity cost rates for setups, material management and packaging & transport.
3. Cost out the two products using an activity-based costing.
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