Chapter 24, Problem P24.27APGA

To determine

Concept Introduction:

Activity Based Costing (ABC): ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity.

Predetermined overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

$\text{Predetermined overhead allocation rate = }\frac{\text{Estimated Manufacturing overhead Cost}}{\text{Allocation base}}$

Requirement-1:

To calculate: The Predetermined overhead allocation rate for each active

To determine

Requirement-2:

To calculate: The activity based cost per unit using the predetermined overhead allocation rates

To determine

Requirement-3:

To calculate: The total allocated indirect cost and Indirect cost per unit using the single plant wide overhead allocation rate

To determine

Requirement-4:

To show: The comparison of activity based cost per unit using the predetermined overhead allocation rates and Indirect cost per unit using the single plant wide overhead allocation rate