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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Activity-based costing

Mainline Marine Company has total estimated factory overhead for the year of $2,090,000, divided into four activities: fabrication, $750,000; assembly, $240,000; setup, $600,000; and inspection, $500,000. Mainline manufactures two types of boats: a speedboat and a bass boat. The activity-base usage quantities for each product by each activity are as follows:

  Fabrication Assembly Setup Inspection
Speedboat 1,200 dlh 1,800 dlh 60 setups 600 inspections
Bassboat 1,800 1,200 100 200
  3,000 dlh 3,000 dlh 160 setups 800 inspections

Each product is budgeted for 200 units of production for the year. Determine (a) the activity rates for each activity and (b) the factory overhead cost per unit for each product, using activity-based costing.

a)

To determine

Activity-Based Costing: Activity-Based Costing refers to the allocation of the factory overheads when there are numerous products and processes. Activity-based costing aims at assigning the costs among the products in a proportionate way.

To Determine: The activity rate for each activity of Company MM.

Explanation

The activity rate for each activity of Company MM is:

  • Activity rate for fabrication is $250 per dlh. (1)
  • Activity rate for assembly is $80 per dlh. (2)
  • Activity rate setup is $3,750 per setup. (3)
  • Activity rate for inspection is $625 per inspection. (4)

Working Note:

Calculate activity rate for fabrication.

Fabrication = Cost of FabricationNumber of labour hours$750,0003,000= $250 dlh

(1)

Calculate activity rate for assembly

b)

To determine
The factory overhead cost per unit for each product of Company MM using activity-based costing.

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