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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.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.9APE
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.

Expert Solution

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 of Solution

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

Expert Solution

b)

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

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Accounting
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