Concept explainers
a.
Ascertain the unit cost for each of the three jobs started and completed using the current costing system.
a.
Explanation of Solution
Activity-based costing:
Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the
Ascertain the unit cost for each of the three jobs started and completed using the current costing system:
Using the direct-labor cost, the predetermined rate using the traditional system is calculated. For the coming year, 16,000 direct-labor hours is estimated by the cost analyst, and an hour of direct labor costs $25 on average. Hence, the estimation of the annual direct-labor cost is $400,000
300% of direct-labor cost
Using the traditional system, the cost of each of the jobs are:
Particulars | Job 1101 | Job 1102 | Job 1103 |
Direct materials | $4,000 | $6,000 | $5,000 |
Direct labor | 10,000 | 16,000 | 13,000 |
Overhead (@300%) | 30,000 | 48,000 | 39,000 |
Total cost | $44,000 | $70,000 | $57,000 |
Number of units | 200 | 500 | 400 |
Unit cost | $220.00 | $140.00 | $142.50 |
Table: (1)
Hence, the unit cost for each of the three jobs started and completed are $220.00, $140.00, and $142.50, respectively.
b.
Ascertain the unit cost for each of the three jobs started and completed using the ABC system.
b.
Explanation of Solution
Compute the unit product cost:
Particulars | Job 1101 | Job 1102 | Job 1103 |
Direct materials | $4,000 | $6,000 | $5,000 |
Direct labor | 10,000 | 16,000 | 13,000 |
Overhead: | |||
Machining | 10,000(1) | 14,000 | 12,000 |
Assembly | 3,000(2) | 10,000 | 4,500 |
Setup labor | 4,000(3) | 8,000 | 4,000 |
Packaging | 300(4) | 750 | 600 |
Compliance testing | 5,000(5) | 0 | 5,000 |
Total costs | $36,300 | $54,750 | $44,100 |
Number of units | 200 | 500 | 400 |
Unit cost | $181.50 | $109.50 | $110.25 |
Table: (2)
Working Note (1):
Calculate the machining overhead.
Working Note (2):
Calculate the assembly overhead.
Working Note (3):
Calculate the Setup labor overhead.
Working Note (4):
Calculate the Packaging overhead.
Working Note (5):
Calculate the Machining overhead.
Working Note (6):
Calculate the cost per machine-hour.
Working Note (7):
Calculate the cost per labor-hour.
Working Note (8):
Calculate the cost per run.
Working Note (9):
Calculate the cost per unit.
Working Note (10):
Calculate the cost per order tested.
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