Question

Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. Activity Cost Cost Driver Material handling $ 298,000 Number of parts Material insertion 3,060,000 Number of parts Automated machinery 865,000 Machine hours Finishing 183,000 Direct labor hours Packaging 183,000 Orders shipped Total $ 4,589,000 The following information pertains to the three product lines for next year: Economy Standard Deluxe Units to be produced 12,000 3,200 2,700 Orders to be shipped 1,020 410 295 Number of parts per unit 5 10 15 Machine hours per unit 1 3 6 Labor hours per unit 2 2 2 Under Barnett’s activity-based costing system, what is the per-unit overhead cost of Economy? (Do not round your intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Answer:

Total overhead on Economy sing ABC-method: $376.18

Explanation:

Frist we calcualte the amount of each cost driver:

                  Economic Standard Deluxe

                      12,000   3,200   2,700  Total:

Nº of parts          5      10       15   60,000

Machine H           1        3        6   12,000

Labor H               2        2        2   24,000

Then we solve for rates:

$\left[\begin{array}{ccccc} Activity& Driver& cost& Total& Rate\\ handling& parts&298000&60000&4.97\\ insertion& parts&3060000&60000&51\\ machinery& MH&865000&12000&72.08\\ finishing& DLH&183000&24000&7.625\\ packaging& orders&183000&1725&106.08\\\end{array}\right]$

Now, apply this rates to economy line:

$\left[\begin{array}{ccccc}Activity&12000&&&\\handling&5&4.97&24.83&\\insertion&5&51&255&\\machinery&1&72.08&72.08&\\finishing&2&7.625&15.25&\\packaging&1020&106.09&9.02\\\end{array}\right]$

We add them together and get the total overhead: 376.18