Answered: Drilling Company uses activity-based…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter2: Accounting For Materials

Section: Chapter Questions

Problem 17E: Davis Co. uses backflush costing to account for its manufacturing costs. The trigger points are the...

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Drilling Company uses activity-based costing and provides this information:

Manufacturing Activity	Cost Driver	Driver Rate
Materials handling	Number of parts	$	0.3
Machinery	Number of machine hours		56
Assembly	Number of parts		3.10
Inspection	Number of finished units		35

Drilling has just completed 85 units of a component for a customer. Each unit required 105 parts and 3.25 machine hours. The prime cost is $1,350 per finished unit. All other manufacturing costs are classified as manufacturing overhead.

Required:

1. Compute the total manufacturing costs and the unit costs of the 85 units just completed using ABC costing.

2. In addition to the manufacturing costs, the firm has determined that the total cost of upstream activities, including research and development and product design, is $185 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service, is $305 per unit. Compute the full product cost per unit, including upstream, manufacturing, and downstream activities. Also compute the relative proportion of each main cost category.

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