| Wk 4 Production Costs |
| Part 1: Dachshund, Inc, |
| Data provided |
| | Single Model | Multi Pet Model |
| Direct labor Cost | $75,000 | $150,000 |
| Machine hours | 2,000 | 2,000 |
| Setup Houts | 200 | 800 |
| OH Allocated to Machine activity pool | $270,000 |
| OH Allocated Setup activity pool | $180,000 |
| TT Est. Overhead cost | $450,000 |
| A. Compute the overhead rate using the traditional (plantwide) approach. |
| Overhead rate =est. overheadcost/direct labor costs |
| TT Est. Overhead cost | $450,000 |
| Total Direct labor cost= (Single Model + Multi Pet Model) | $225,000 |
| Overhead rate using traditional approach= (OH cost/direct labor) | $2 |
| B. Compute the overhead rate using the activity-based costing approach. |
| | Machine Activity | Setup Activity |
| Activity Cost pool | $270,000 | $180,000 |
| TT of cost drivers (Machine Hrs + Setup Hrs) | 4000 | 1000 |
| Activity cost per cost diver= Activity cost pool / tt of cost drivers | $67.50 | $180.00 |
| C. Determin the difference in allocation between the two approches. |
| OH allocation using tradional approach |
| | Single Model | Multi Pet Model | Total |
| Direct labor Cost | $75,000 | $150,000 | $225,000 |
| OH from tradional approach | $2 | $2 |
| Total OH Allocation=(Direct labor cost*activitycost per driver) | $150,000 | $300,000 | $450,000 |
| OH allocation using Activity Cost base approach |
| | Single Model | Multi Pet Model | Total |
| Machine Hours | 2,000 | 2,000 | 4,000 |
| Activity cost per driver | $67.50 | $67.50 |
| Machine activity cost=(Machine hours * activity cost per driver | $135,000 | $135,000 | $270,000 |
| Setup Hours | 200 | 800 | 1000 |
| Activity per cost driver | $180.00 | $180.00 |
| Setup activity cost (setup hours * activity per cost driver | $36,000 | $144,000 | $180,000 |
| Total overhead Allocation=(Machine activity + Setup activity | $171,000 | $279,000 | $450,000 |
| Difference between the two approaches |
| | Single Model | Multi Pet Model |
| OH allaction using the tradition approach | $150,000 | $300,000 |
| OH allaction using the Average base cost approach | $171,000 | $279,000 |
| Difference (traditional approach - Average base cost approach | -$21,000 | $21,000 |
| Under traditional approach OH cost amounting to @21,000 is under applied in thel single model and over-applied in Multi- pet model when compared with average base cost approach. |
| Part 2 Dachshund, Inc. |
| Data provided |
| | Single Model | Multi Pet Model |
| Direct labor Cost | $75,000 | $150,000 |
| Machine hours | 2,000 | 2,000 |
| Setup Hours | 200 | 800 |
| Packing Hours | 50 | 75 |
| OH Allocated to Machine activity pool | $240,000 |
| OH Allocated Setup activity pool | $170,000 |
| OH Allocated Packing | $40,000 |
| TT Est. Overhead cost | $450,000 |
| Compute the overhead rate using the activity-based costing approach. |
| D. | Machine Activity | Setup Activity | Packing Activity | Total |
| Activity Cost pool | $240,000 | $170,000 | $40,000 | $450,000 |
| TT of cost drivers (Drivers Machine Hrs, Setup Hrs, packing hrs) | 4,000 | 1000 | 125 | 5,125 |
| Cost per activity (activity cost pool/tt of cost drivers) | $60 | $170 | $320 |
| Compute overhead allocation using the activity-based costing approach. |
| E. | Single Model | Multi Pet Model | Total |
| Machine Hours | 2,000 | 2,000 | 4,000 |
| Activity cost per driver | $60.00 | $60.00 |
| Machine activity cost=(Machine hours * activity cost per driver | $120,000 | $120,000 | $240,000 |
| Setup Hours | 200 | 800 | 1000 |
| Activity per cost driver | $170.00 | $170.00 |
| Setup activity cost (setup hours * activity per cost driver | $34,000 | $136,000 | $170,000 |
| Packing Hours | 50 | 75 | 125 |
| Activity per cost driver | $320.00 | $320.00 |
| Setup activity cost (setup hours * activity per cost driver | $16,000 | $24,000 | $40,000 |
| Total overhead Allocation=(Machine activity + Setup activity | $170,000 | $280,000 | $450,000 |
| F. | Two activity cost pool | Three activity cost pool |
| Single Model | $171,000 | $170,000 | $1,000 |
| Multi Pet Model | $279,000 | $280,000 | -$1,000 |
| Total | $450,000 | $450,000 | $0 |
| Per calculation in comparing two activity cost pool to the three activity cost pool there is no material difference in the allocation using the three cost pool. As result it is not worth using the three cost pool. |
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WK4ProductionCosts.xlsx
