Computing Product Costs Using Activity-Based Costing
Subject: Business   / Accounting
Question
Computing Product Costs Using Activity-Based Costing: Petrov Company identified the following activities, estimated costs for each activity, and identified cost drivers for each activity for this coming year. (These are the first three steps of the activity-based costing model).
Save your time!
- Proper editing and formatting
- Free revision, title page, and bibliography
- Flexible prices and money-back guarantee
Activity
Cost Driver
Estimated Annual Overhead Costs
Estimated Annual Cost Driver Activity
Production setup
Number of production runs
$ 60,000
100 production runs
Materials handling
Yards of material purchased
140,000
10,000 yards purchased
Quality control
Number of inspections
80,000
800 inspections
Total
$280,000
The company produces two products, MX1 and MX2. Information about these products of the month of March follows:
MX1
MX2
Direct materials cost per unit
$20
$30
Direct labor costs per unit
$15
$45
Overhead cost per unit
?
?
Product cost per unit
?
?
Units produced
1,000 units
700 units
Actual cost driver activity levels for the month of March are as follows:
MX1
MX2
Number of production runs
3
6
Yards of materials purchased
550
230
Number of inspections
40
10
Required:
a. Using the estimates for the year, compute the predetermined overhead rate for each activity (this is step 4 of the activity-based costing process).
b. Using the activity rates calculated in requirement a and the actual cost driver activity levels shown for March, allocate overhead to the three products for the month of March (this is step 5 of the activity-based costing process).
Template for part (a)
Activity
Cost Driver
Estimated Overhead Costs
Estimated Cost Driver Activity
Pre-determined Overhead Rate
Production setups
Number of production units
$ [__________]
[____] runs
$[____] per production run
Materials handling
Yards of materials purchased
$ [__________]
[____] yards
$[____] per yard purchased
Quality control
Number of inspections
$ [__________]
[____] inspections
$[____] per inspection
Total
$ [__________]
Template for part (b)
MX1
MX2
Pre-determined
Overhead Rate
Cost Driver Activity
Overhead Allocated
Cost Driver Activity
Overhead Allocated
$[____] per production run
[___]
$ [__________]
[___]
$ [__________]
$[____] per yard purchased
[___]
$ [__________]
[___]
$ [__________]
$[____] per inspection
[___]
$ [__________]
[___]
$ [__________]
Total allocated
