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Exercise 8-4 (10 minutes)
K425
Activity Cost Pool Activity Rate Activity ABC Cost
Supporting direct labor $6 per direct labor-hour 80 direct labor-hours $ 480
Machine processing $4 per machine-hour 100 machine-hours 400
Machine setups $50 per setup 1 setups 50
Production orders $90 per order 1 order 90
Shipments $14 per shipment 1 shipment 14
Product sustaining $840 per product 1 product 840
Total $1,874

M67
Activity Cost Pool Activity Rate Activity ABC Cost
Supporting direct labor $6 per direct labor-hour 500 direct labor-hours $ 3,000
Machine processing $4 per machine-hour 1,500 machine-hours 6,000
Machine setups $50 per setup 4 setups 200
Production orders $90 per order 4 orders 360
Shipments $14 per shipment 10 shipments 140
Product sustaining $840 per product 1 product 840
Total $10,540






Exercise 8-7 (30 minutes)
1. Activity rates are computed as follows:

Activity Cost Pool (a)
Estimated
Overhead
Cost (b)
Expected
Activity (a) ÷ (b)
Activity
Rate
Machine setups $72,000 400 setups $180 per setup
Special processing $200,000 5,000 MHs $40 per MH
General factory $816,000 24,000 DLHs $34 per DLH

2. Overhead is assigned to the two products as follows:

Hubs:
Activity Cost Pool (a)
Activity Rate (b)
Activity (a) × (b)
ABC Cost
Machine setups $180 per setup 100 setups $ 18,000
Special processing $40 per MH 5,000 MHs 200,000
General factory $34 per DLH 8,000 DLHs 272,000
Total $490,000

Sprockets:
Activity Cost Pool (a)
Activity Rate (b)
Activity (a) × (b)
ABC Cost
Machine setups $180 per setup 300 setups $ 54,000
Special processing $40 per MH 0 MHs 0
General factory $34 per DLH 16,000 DLHs 544,000
Total $598,000

Exercise 8-7 (continued)
Hubs Sprockets
Direct materials $32.00 $18.00
Direct labor:
$15 per DLH × 0.80 DLHs per unit 12.00
$15 per DLH × 0.40 DLHs per unit 6.00
Overhead:
$490,000...

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