Activity Based Costing (ABC): ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity. To calculate: The Cost assigned to each product using the ABC system

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Chapter 4, Problem 3.5GAP

To determine

Concept introduction:

Activity Based Costing (ABC):

ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity.

To calculate:

The Cost assigned to each product using the ABC system

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Chrzan, Incorporated, manufactures and sells two products: Product EO and Product NO. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Product E0 Product Ne Total direct labor-hours Activity Cost Pools Labor-related Production orders Order size The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Overhead Cost Multiple Choice $33.94 per MH $54.20 per MH Direct Expected Labor-Hours Production Per Unit 10.1 410 1,550 9.1 $51.98 per MH $21.40 per MH Activity Measures DLHS orders MHs Total Direct Labor- Hours $ 301,890 61,087 585,366 $948,343 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: 4,141 14, 105 18,246 Product E 4,141 850 5,550 Expected Activity Product NO 14, 105 950 5,250 Total 18,246 1,800 10,800

Fletes Corporation manufactures two products: Product O95C and Product M31N. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products O95C and M31N. Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine-hours $ 207,000 9,000 MHs Machine setups Number of setups $ 140,000 350 setups Product design Number of products $ 98,000 2 products Order size Direct labor-hours $ 340,000 10,000 DLHs Activity Measure Product O95C Product M31N Machine-hours 6,000 3,000 Number of setups 190 160 Number of products 1 1 Direct labor-hours 4,000 6,000 Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?

A company manufactures two product types: Product A and Product B. The company uses an activity-based costing (ABC) system that allocates all of its overhead to three cost pools. The activity rates for the three cost pools are in the table below: Activity Cost rate $20/MH Activity Cost Pool Machining Factory Setups Product Design type The following Table is information for Product A: Product Type Machine Hours Number of setups Number of units Direct Labor Hours $100/setup $6,000 per product Direct Material Costs Direct Labor Costs Overhead Costs: Machining Factory Setups Product Design Total Product Costs Product A 3,000 MHs 230 setups Direct Material Cost Labor wage rate $25/DLH Calculate the total product cost assigned to Product A if Activity Based Costing is used. Use the Table below as guide: Product A Total Product Costs ($) ? 10,000 units 7,000 DLH $8.00/unit ? ? ? ? ?