This exercise will deal with the costing of a product using a predetermined overhead rate and Activity Based Costing (ABC). Please note the different results from using the different methods.
The Sample Company wants to compare the results from the use of a predetermined overhead rate versus Activity Based Costing (ABC). The following are the estimated costs:
|Estimated manufacturing overhead||$1,000,000.00|
|Estimated direct labor hours (DLH)||40,000|
|Predetermined overhead rate (per DLH)||$25.00|
|Time to make one unit (hours)||0.75||1|
|Estimated units produced||40,000||10,000|
|Estimated total DLH||30,000||10,000|
|Direct materials cost per unit||$35.00||$48.00|
|Direct labor cost per unit (at $12 per DLH)||$9.00||$12.00|
|Estimated Overhead||Expected Activity|
|Maintaining parts inventory||$180,000.00||225|
|Processing purchase orders||$90,000.00||1000|
|Total estimated overhead||$1,000,000.00|
|Expected Activity Mono-relay||Expected Activity Bi-Relay||Total Activity|
|Maintaining parts inventory||75||150||225|
|Processing purchase orders||800||200||1,000|
Compute the direct material, direct labor, overhead and total unit cost using the following:
- Predetermined overhead rate
- Activity Based Costing (ABC)
Please use the following Excel template:
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