MA10 Problem: Activity Based Costing – Johannes Incorporated

MA10 Problem: Activity Based Costing – Johannes Incorporated

Johannes Incorporated manufactures two types of mattresses, ‘premium’ and ‘regular’. There aretwo direct-cost categories, direct materials and direct manufacturing labour and three indirect-cost pools (activity cost pools). The three indirect (activity) cost pools are materials handling,cutting, and assembly. There are no other cost pools associated with production of themattresses.Information related to the indirect (activity) cost pools is as follows:

ManufacturingActivity AreaBudgeted Costs for20X7Cost Driver Used asAllocation Base (oractivity measure)Cost AllocationRate (or activityrates)

Materials-handling

1,120,000

Parts

1.40

Cutting

2,560,000

Parts

3.20

Assembly

2,240,000

Direct manufacturinglabour hours

28.00Data for September 20X7 with respect to quantities, direct material, parts & labour are:

UnitsProducedDirectMaterial CostsNumber of PartsDirectManufacturingLabour Hours

Regular 2,000 $624,000 40,000 6,000Premium 500 210,000 20,000 2,000The direct manufacturing labour rate is $25 per hour. There are no beginning or endinginventories.The upstream activities to manufacturing (research and design) and the downstream activities(marketing, distribution, logistics, and customer service) were budgeted per unit as follows:

UpstreamactivitiesDown Streamactivities

Regular $40 $87Premium $83 $104Required:Compute the full product costs per unit for both the regular and premium mattress lines.