Question

Bismark Inc, a large manufacturer of heavy equipment components, has determined the following activity cost pools and cost driver levels for the year:
Activity Cost Pool Activity Cost Activity Cost Driver
Machine Setup $600,000 15,000 setup hours
Material handling 90,000 3,000 tons of materials
Machine operation 420,000 12,000 machine hours
The following data are for the production of single batches of two products, Camshafts and Swing Drives during the month of August:
Camshafts Swing Drives
Units produced 1,500 900
Machine hours 4 5
Direct labor hours 300 500
Direct labor cost $7,000 $12,000
Direct materials cost $40,000 $30,000
Tons of materials 10 7
Setup hours 5 8
Determine the unit costs of Camshafts and Swing Drives using ABC. Round answers to the nearest cent.
Camshafts $ _____
Swing Drives $_____

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the activities rates:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machine Setup= 600,000 / 15,000= $40 per setup hour

Material handling= 90,000 / 3,000= $30 per ton of material

Machine operation= 420,000 / 12,000= $35 per machine hour

Now, we can allocate costs to each product:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Camshafts:

Machine Setup= 40*5= $200

Material handling= 30*10= $300

Machine operation= 35*4= $140

Total allocated costs= $640

Swing Drives:

Machine Setup= 40*8= $320

Material handling= 30*7= $210

Machine operation= 35*5= $175

Total allocated costs= $705

Finally, the unitary cost:

Camshafts:

Total cost= 40,000 + 7,000 + 640= $47,640

Unitary cost= 47,640 / 1,500= $31.76

Swing Drives:

Total cost= 30,000 + 12,000 + 705= $42,705

Unitary cost= 42,705 / 900= $47.45