P8.33Traditional and activity-based product costing: manufacturerThe accountant for Snappy Photographic Supply Ltd has estimated the following activity cost pools andactivity drivers for the coming year:LO8.58.6Budgeted level foractivity driverBudgetedCost per unit ofActivityoverhead costActivity driveractivity driverMachine setups$300000No. of setups100$3000 per setupMaterial handling150000Weight of raw material50000 kilograms$3 per kilogramWeight of hazardouschemicals usedHazardous waste control7500010000 kilograms$7.50 per kilogramS112.50 per inspection$15 per machine hourQuality control112500No. of inspections1 000Other overhead costs300000Machine hours20000Total$937 500An order for 1000 boxes of film development chemicals has the following production requirements:Machine setups4 setupsRaw material10000 kilogramsHazardous materials2000 kilogramsInspections10 inspectionsMachine hours500 machine hoursRequired:1. Calculate the total overhead that should be assigned to the order for development chemicals.2. What is the overhead cost per box of chemicals?3. If Snappy Photographic Supply were to use a plantwide predetermined overhead rate based on machinehours, calculate the rate per hour.4. Under the approach in requirement 3, how much overhead would be assigned to the order for developmentchemicals:(a) in total(b) per box of chemicals?5. Explain why these two product costing systems result in such widely differing costs. Which system do yourecommend? Why?6. Calculate the unit cost of a production order for 100 specially coated plates used in film development. Inaddition to direct material costing $180 per plate and direct labour costing $60 per plate, the orderrequires the following:Machine setups2 setupsRaw material800 kilogramsHazardous materials300 kilogramsInspections3 inspectionsMachine hours50 machine hours

Budgeted Budgeted level for Cost per u Activity overhead cost Activity driver activity driver activity dm Machine setups $300000 No. of setups 100 $3000 per setu Material handling 150000 Weight of raw material 50000 kilograms $3 per kilogram Weight of hazardous chemicals used Hazardous waste control 75000 10000 kilograms $7.50 per kilog Quality control 112500 No. of inspections 1 000 S112.50 per in: Other overhead costs $15 per machir 300000 Machine hours 20000

Budgeted Budgeted level for Cost per u Activity overhead cost Activity driver activity driver activity dm Machine setups $300000 No. of setups 100 $3000 per setu Material handling 150000 Weight of raw material 50000 kilograms $3 per kilogram Weight of hazardous chemicals used Hazardous waste control 75000 10000 kilograms $7.50 per kilog Quality control 112500 No. of inspections 1 000 S112.50 per in: Other overhead costs $15 per machir 300000 Machine hours 20000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Process Assembly Finishing Support Activity Machining Setups Budgeted Cost $311,800 Activity Cost Driver Activity Usage Machine hours (MH) 7,600 24,000 $335,800 Setups 240 Inspecting Purchasing $ 224,000 Inspections 800 $ 130,000 Purchase orders 540 Additional production information concerning its two models follows. Units and Activities Units produced Machine hours Setups Inspections Purchase orders Per Unit Selling price per unit Direct materials cost per unit Direct labor cost per unit Model X Model Z 2,000 4,000 2,200 5,400 80 160 540 260 360 180 Model X $410 Model Z $ 390 160 110 145 160 1. Compute the activity rate for each activity using activity-based costing. 2. Using activity-based costing, compute the overhead cost per unit for each model. 3. Compute the total product cost per unit for each model. 4. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).
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