cost accounting
amnah96
Eldenburg_Wolcott_Wk07_ch07.ppt© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 1
Cost Management
Measuring, Monitoring, and Motivating Performance
Chapter 7
Activity-Based Costing and Management
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 2
Chapter 7: Activity-Based Costing and Management
Learning objectives
Q1: What is activity-based costing (ABC)?
Q2: What are activities and how are they identified?
Q3: What process is used to assign costs in an ABC system?
Q5: What are GPK and RCA?
Q4: What is activity-based management?
Q6: How does information from ABC, GPK, and RCA affect managers’ incentives and decisions?
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 3
Q1: Activity-Based Costing (ABC)
ABC is a method of cost system refinement.
Indirect costs are divided into “sub-pools” of costs of activities.
Activity costs are then allocated to the final cost objects using a cost allocation base (more commonly called cost drivers in ABC).
Activities are measurable, making it more likely that cost drivers can be found so that a final cost object will absorb indirect costs in proportion to its use of the activity.
The first bullet is automated.
One click is required for each remaining bullet.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 4
Q1: Traditional Costing vs. ABC
Product A
Product B
Product C
Traditional costing systems:
Indirect
Costs
Direct Costs
Direct Costs
Direct Costs
Direct costs are traced to the individual products.
The individual products are the final cost objects.
Indirect costs are grouped into one (or a small number) of cost pools; a cost allocation base assigns costs to the individual products
The yellow cost object group is animated.
The first click starts the sequence to show direct cost assignment to the products.
The second click begins the sequence to show indirect cost assignment to the products.
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Q1: Traditional Costing Systems
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 5
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 6
Q1: Traditional Costing vs. ABC
Activity-based costing systems:
Indirect
Costs
Product A
Product B
Product C
Direct Costs
Direct Costs
Direct Costs
The individual products are the final cost objects & direct costs are traced to the individual products.
Indirect costs are assigned (traced & allocated) to various pools of activity costs.
Activity 1
Activity 2
Activity 3
Activity costs are allocated to products
The text box in the lower right hand corner is automated and disappears on the first mouse click.
The first click starts the sequence to show indirect cost assignment to the activities.
The second click brings in the text box in the middle, about allocating activity costs.
The 3rd click brings in the arrows that assign Activity 1 costs to all 3 products; these arrows disappear on the next click.
The 4th click brings in the arrows that assign Activity 2 costs to Products A & B; these arrows disappear on the next click.
The 5th click brings in the arrows that assign Activity 3 costs to Products B & C.
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Q1: ABC Costing Systems
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 7
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 8
Q2: What are Activities and How are They Identified?
The ABC cost hierarchy includes the following activities:
organization-sustaining – associated with overall organization
facility-sustaining – associated with single manufacturing plant or service facility
customer-sustaining – associated with a single customer
product-sustaining – associated with product lien or single product
batch-level – associated with each batch of product
unit-level – associated with each unit produced
This slide is completely, so no clicks are required.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 9
Q2: ABC Cost Hierarchy Example
Some of the costs incurred by the Dewey Chargem law firm are listed below. This firm specializes in immigration issues and family law. For each cost, identify whether the cost most likely relates to a(n) (1) organiz-ation-sustaining, (2) facility-sustaining, (3) customer-sustaining, (4) product-sustaining, (5) batch-level, or (6) unit-level activity and explain your choice.
This slide is entirely automated – no clicks are required.
No solutions are provided because the problem is meant to generate discussion. The answer for almost every cost is “it depends”. Refer to problem 7.15 in the text and its related solutions as this problem is very similar.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 10
Q3: What Process is Used to Assign Costs in an ABC system?
Identify the relevant cost object.
Identify activities and group homogeneous activities.
Assign costs to the activity cost pools.
Choose a cost driver for each activity cost pool.
Calculate an allocation rate for each activity cost pool.
Allocate activity costs to the final cost object.
One click is required for each bullet, including the first one.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 11
Q3: How Are Cost Drivers Selected for Activities?
For each activity, determine its place in the ABC cost hierarchy.
Look for drivers that have a good cause-and-effect relationship with the activities’ costs.
Use a reasonable driver when there is no cause-and-effect relationship.
The first bullet is automated. One click is required for each remaining bullet.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 12
Q3: ABC in Manufacturing Example
Alphabet Co. makes products A & B. Product A is a low-volume specialty item and B is a high-volume item. Estimated factory- wide overhead is $800,000, and the number of DL hours for the year is estimated to be 50,000 hours. DL costs are $10/hour. Each product uses 2 DL hours. Compute the traditional cost of each product if Products A & B use $25 and $10 in direct materials, respectively.
First, compute the estimated overhead rate:
Estimated overhead rate = $800,000/50,000 hours = $16/hour.
Product A Product B
Direct materials $25 $10
Direct labor (2hrs @ $10) 20 20
Overhead (2 hrs @ $16) 32 32
$77 $62
The given information is automated.
The first click brings in the “First, compute..” text, which disappears on the next mouse click.
The second click brings in the computation of the estimated overhead rate.
The third click brings in the computation of the cost of the 2 products.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 13
Q3: ABC in Manufacturing Example
Alphabet Co. is implementing an ABC system. It estimated the costs and activity levels for the upcoming year shown below.
First, compute the estimated overhead rate for each activity:
The given information is automated.
The first click brings in the “First, compute..” text.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 14
Q3: ABC in Manufacturing Example
The overhead rates do not appear on the animated slide show until you click once.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 15
Q3: ABC in Manufacturing Example
Alphabet recently completed a batch of 100 As and a batch of 100 Bs. Direct material and labor costs were as budgeted. Information about each batch’s use of the cost drivers is given below. Compute the overhead allocated to each unit of A and B.
The given information is automated.
The first click brings in the computations for the overhead allocated to each unit.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 16
Q3: ABC in Manufacturing Example
Compute the total cost of each product and compare it to the costs computed under traditional costing.
Traditional costing assigned $77 to a unit of Product A and $62 to a unit of Product B.
The only difference between the two costing systems is that Product A is assigned more overhead costs under ABC.
The additional overhead assigned to Product A reflects Product A’s consumption of resources.
The given information is automated.
The first click brings in the computations of the product cost and the text box to the right.
The second click brings in the first bullet at the bottom of the slide.
The third click brings in the second bullet at the bottom of the slide.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 17
ABM is the process of using ABC information to evaluate opportunities for improvements in an organization.
Q4: Activity-Based Management (ABM)
Examples include managing & monitoring
customer profitability
product and process design
environmental costs
quality
constrained resources
The first bullet is automated.
The first click brings in the sequence that displays the remaining slide elements.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 18
Activities can be defined so that different costs of servicing customers are accumulated.
Q4: ABM & Customer Profitability
Examples include
analyzing the types of bank transactions used by various categories of customers
comparing the costs of servicing insurance contracts sold to married versus single individuals
comparing the costs of different distribution channels
The first bullet is automated.
The first click brings in the sequence that displays the remaining slide elements.
Several good examples for class discussion are found at http://www.aicpa.org/cefm/value_chain_10.asp
(This is not a live link – you will have to paste it into your browser.)
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 19
Activities can be defined so that the costs of stages of production or of a business process are accumulated.
Q4: ABM & Product/Process Improvements
Examples include
determining the costs of non-value-added activities so the most costly can be reduced or eliminated
changing the steps in the accounts payable function to reduce the number of personnel
determining the most costly stages of product development so that the time to market is reduced
The first bullet is automated.
The first click brings in the sequence that displays the remaining slide elements.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 20
Activities can be defined so that types of environmental costs are accumulated.
Q4: ABM & Environmental Costs
Examples include
capturing the costs of contingent liabilities for waste disposal site remediation
comparing the cost of recycling packaging to the cost of disposal
computing the costs of treating different kinds of emissions
The first bullet is automated.
The first click brings in the sequence that displays the remaining slide elements.
There is a nice paper from the EPA to review at http://www.vision2020.hamilton.ca/downloads/Determining-Costs.pdf.
Again, this is not a live link.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 21
Activities can be defined so that categories of costs of managing quality are accumulated.
Q4: ABM & Quality Costs
Common categories of quality costs are
costs of prevention activities
costs of appraisal activities
costs of production activities
costs of postsales activities
The first bullet is automated.
One click is required for each remaining bullet and sub-bullet.
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Q5: What are GPK and RCA?
Costing approaches similar to ABC because they involve multiple pools and multiple drivers
GPK can be described as marginal planning and cost accounting
Each cost is traced to a cost center (smaller than a department) which performs a single repetitive activity, and is the responsibility of one manager)
Output measures tracks the volume of resource use
Costs are segregated into proportional (change with volume in resource use) and fixed
Practical capacity is used for estimated allocation rate volumes
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 22
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Q5: Capacity Definitions
Theoretical capacity – maximum assuming continuous, uninterrupted operations 365 days/year
Practical capacity – typical operating conditions
Budgeted capacity – expected volume for the upcoming time period
Idle/excess capacity – difference between activity capacity used and one of the above measures of capacity
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 23
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Resource Consumption Accounting (RCA)
Builds on GPK and ABC principles
Each cost is assigned to a resource cost pool
Labor and machinery are often placed in different cost pools since they are different types of resources
RCA involves a significantly larger number of cost pools than traditional accounting
Like GPK, segregates proportional and fixed costs
Utilizes theoretical rather than practical capacity for allocating fixed costs
More likely to focus manager attention on reducing idle and non-productive resource time
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 24
Q5: What are GPK and RCA?
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Q5: Benefits/Drawbacks to GPK/RCA
Benefits
Generates multi-level internal income statements useful for short terms decisions because it focuses on marginal cost
Increases cause & effect awareness among managers
Categorizes costs (and generates profit margin) at the product, product group, division, and company level
Avoids arbitrary allocations of fixed costs
Drawbacks
Can be costly to implement
Can result in a large number of variances to analyze
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 25
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Q5: Comparison of ABC, GPK, and RCA
| ABC | GPK | RCA | |
| Character of cost accounting system | Full costing | Marginal costing | Full and marginal costing |
| Location of data | Database separate from general ledger | Comprehensive accounting system | Comprehensive accounting system |
| Primary decision relevance | Mid- to long-term | Short-term | Short-, Mid-, and Long term |
| Allocation of overhead based on | Activities | Cost Centers | Resources and/or activities |
| Cost Drivers | Activity –Based | Resource Output related | Resource output or activity related |
| Fixed cost allocation rate denominator | Actual, budgeted, or practical capacity | Budgeted or practical capacity | Theoretical capacity |
© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 26
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 27
Benefits
more accurate and relevant product cost information
employees focus attention on activities
measurement of the costs of activities and business processes
identify non-value-added activities and reduce costs
Q6: Decision Making with ABC, GPK, and RCA
Costs
systems can be difficult to design and maintain
more information must be captured
decision makers may not use the information appropriately
The first bullet and all of its sub-bullets are automated on 0.5 second delays.
The first click begins the sequence to display the rest of the slide elements.
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© John Wiley & Sons, 2011
Chapter 7: Activity-Based Costing and Management
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 28
Judgment is required when determining activities.
Q6: Uncertainties in ABC and ABM Implementation
Judgment is required when selecting cost drivers.
Denominator levels for cost drivers are estimates.
ABC information includes unitized fixed costs, so decision makers must use ABC information correctly.
The first bullet is automated.
One click is required for each remaining bullet.
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CostCost Hierarchy Level
Bookkeeping software
Salary for partner in charge of family law
Office supplies
Subscription to family law update journal
Telephone charges for local calls
Long distance telephone charges
Window washing service
Salary of receptionist
Alphabet given info
| Estimated Activity Levels | |||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Activity | Overhead Rate | |||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Alphabet batch info
| 100 As | Overhead Rate | |||||||
| 100 Bs | ||||||||
| Machine set-ups | 60 | 10 | set-ups | $40 | /setup | |||
| Inspections | 10 | 2 | inspections | $175 | /inspection | |||
| Materials handling | 4 | 2 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 240 | 120 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 3 | 1 | tests | $80 | /test | |||
| Overhead allocated: | 100 As | 100 Bs | ||||||
| Machine set-ups | $2,400 | $400 | ||||||
| Inspections | 1,750 | 350 | ||||||
| Materials handling | 400 | 200 | ||||||
| Machining dep't | 1,920 | 960 | ||||||
| Quality control dep't | 240 | 80 | ||||||
| Overhead for batch | $6,710 | $0 | $1,990 | |||||
| Overhead per unit | $67.10 | $0.00 | $19.90 | |||||
| Prod A | Prod B | |||||||
| Direct material | $25.00 | $10.00 | ||||||
| Direct labor | 20.00 | 20.00 | ||||||
| Overhead | 67.10 | 19.90 | ||||||
| Total | $112.10 | $0.00 | $49.90 |
Sheet2
| Cost | Cost Hierarchy Level | |
| Bookkeeping software | ||
| Salary for partner in charge of family law | ||
| Office supplies | ||
| Subscription to family law update journal | ||
| Telephone charges for local calls | ||
| Long distance telephone charges | ||
| Window washing service | ||
| Salary of receptionist |
Sheet3
Prod. AProd. BTotalCost Driver
Machine set-ups$200,0003,0002,0005,000# set-ups
Inspections140,000500300800# inspections
Materials handling80,000400400800# mat'l requistions
Machining dep't320,00012,00028,00040,000# machine hours
Quality control dep't60,000600150750# tests
$800,000
Estimated Activity LevelsEstimated
Costs
Sheet1
| Estimated Costs | Estimated Activity Levels | ||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Sheet2
Sheet3
Machine set-ups$200,0005,000set-ups$40/setup
Inspections140,000800inspections$175/inspection
Materials handling80,000800mat'l requistions$100/requisition
Machining dep't320,00040,000machine hours$8/mach hr
Quality control dep't60,000750tests$80/test
$800,000
Estimated CostsOverhead RateEstimated Activity
$40/setup
$175/inspection
$100/requisition
$8/mach hr
$80/test
Alphabet given info
| Estimated Costs | Estimated Activity Levels | ||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Costs | Estimated Activity | Overhead Rate | ||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Sheet2
Sheet3
Alphabet given info
| Estimated Activity Levels | |||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Activity | Overhead Rate | |||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Sheet2
Sheet3
100 Bs
Machine set-ups6010
Inspections102
Materials handling42
Machining dep't240120
Quality control dep't31
100 As
Overhead allocated:100 As100 Bs
Machine set-ups$2,400$400
Inspections1,750350
Materials handling400200
Machining dep't1,920960
Quality control dep't24080
Overhead for batch$6,710$1,990
Overhead per unit$67.10$19.90
Alphabet given info
| Estimated Activity Levels | |||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Activity | Overhead Rate | |||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Alphabet batch info
| 100 As | Overhead Rate | |||||||
| 100 Bs | ||||||||
| Machine set-ups | 60 | 10 | set-ups | $40 | /setup | |||
| Inspections | 10 | 2 | inspections | $175 | /inspection | |||
| Materials handling | 4 | 2 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 240 | 120 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 3 | 1 | tests | $80 | /test |
Sheet2
Sheet3
Alphabet given info
| Estimated Costs | Estimated Activity Levels | ||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Costs | Estimated Activity | Overhead Rate | ||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Alphabet batch info
| 100 As | Overhead Rate | |||||||
| 100 Bs | ||||||||
| Machine set-ups | 60 | 10 | set-ups | $40 | /setup | |||
| Inspections | 10 | 2 | inspections | $175 | /inspection | |||
| Materials handling | 4 | 2 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 240 | 120 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 3 | 1 | tests | $80 | /test | |||
| Overhead allocated: | 100 As | 100 Bs | ||||||
| Machine set-ups | $2,400 | $400 | ||||||
| Inspections | 1,750 | 350 | ||||||
| Materials handling | 400 | 200 | ||||||
| Machining dep't | 1,920 | 960 | ||||||
| Quality control dep't | 240 | 80 | ||||||
| Overhead for batch | $6,710 | $0 | $1,990 | |||||
| Overhead per unit | $67.10 | $0.00 | $19.90 |
Sheet2
Sheet3
Prod AProd B
Direct material$25.00$10.00
Direct labor20.0020.00
Overhead67.1019.90
Total
$112.10$49.90
Alphabet given info
| Estimated Activity Levels | |||||||||
| Prod. A | Prod. B | Total | Cost Driver | ||||||
| Machine set-ups | $200,000 | 3,000 | 2,000 | 5,000 | # set-ups | 40.00 | |||
| Inspections | 140,000 | 500 | 300 | 800 | # inspections | 175.00 | |||
| Materials handling | 80,000 | 400 | 400 | 800 | # mat'l requistions | 100.00 | |||
| Machining dep't | 320,000 | 12,000 | 28,000 | 40,000 | # machine hours | 8.00 | |||
| Quality control dep't | 60,000 | 600 | 150 | 750 | # tests | 80.00 | |||
| $800,000 |
Alphabet OH rates
| Estimated Activity | Overhead Rate | |||||||
| Machine set-ups | $200,000 | 5,000 | set-ups | $40 | /setup | |||
| Inspections | 140,000 | 800 | inspections | $175 | /inspection | |||
| Materials handling | 80,000 | 800 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 320,000 | 40,000 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 60,000 | 750 | tests | $80 | /test | |||
| $800,000 |
Alphabet batch info
| 100 As | Overhead Rate | |||||||
| 100 Bs | ||||||||
| Machine set-ups | 60 | 10 | set-ups | $40 | /setup | |||
| Inspections | 10 | 2 | inspections | $175 | /inspection | |||
| Materials handling | 4 | 2 | mat'l requistions | $100 | /requisition | |||
| Machining dep't | 240 | 120 | machine hours | $8 | /mach hr | |||
| Quality control dep't | 3 | 1 | tests | $80 | /test | |||
| Overhead allocated: | 100 As | 100 Bs | ||||||
| Machine set-ups | $2,400 | $400 | ||||||
| Inspections | 1,750 | 350 | ||||||
| Materials handling | 400 | 200 | ||||||
| Machining dep't | 1,920 | 960 | ||||||
| Quality control dep't | 240 | 80 | ||||||
| Overhead for batch | $6,710 | $0 | $1,990 | |||||
| Overhead per unit | $67.10 | $0.00 | $19.90 | |||||
| Prod A | Prod B | |||||||
| Direct material | $25.00 | $10.00 | ||||||
| Direct labor | 20.00 | 20.00 | ||||||
| Overhead | 67.10 | 19.90 | ||||||
| Total | $112.10 | $0.00 | $49.90 |
