Chapter 3A, Problem 3A.1E

1.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To compute: The activity rate for each activity cost pool.

Answer to Problem 3A.1E

Total ABC cost of Hubs is $490,000 and Total ABC cost of sprockets $598,000.

Explanation of Solution

The overhead assigned between two products:

Hubs:

Activity cost Pool	Activity rate(A) $	Expected activity (B) $	ABC cost ( $A\times B$)$
Machine setups	180 per setup	100 setups	18000
Special processing	40 per M hour	5000 machine hour	200000
General factory	34 per L hour	8000 labor hours	272000
Total ABC cost			490000

Sprockets:

Activity cost Pool	Activity rate(A) $	Expected activity (B) $	ABC cost ( $A\times B$)$
Machine setups	180 per setup	200 setups	54,000
Special processing	40 per M hour	0 machine hour	0
General factory	34 per L hour	16000 labor hours	544,000
Total ABC cost			598,000

Working notes:

Activity cost Pool	Estimated overhead (A)	Expected activity (B)	Activity rate( $\frac{A}{B}$)
Machine setups	$72000	400 setups	180 per setup
Special processing	200000	5000 machine hours	40 per machine hour
General factory	816000	24000 labor	34 per labor hour

Thus, Total ABC cost of Hubs is $490,000 and Total ABC cost of sprockets $598,000.

2.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To compute: the unit product cost for Hubs and sprockets using activity based absorption costing.

Answer to Problem 3A.1E

Unit product cost of hubs is $93 and a sprocket is $38.95.

Explanation of Solution

Particular	Hubs $	Sprockets
Direct materials	32	18
Direct labor	12( $15perDLH\times 0.80\text{}DLHper\text{}unit$)	6( $15perDLH\times 0.40\text{}DLHper\text{}unit$)
Manufacturing overhead	49 ( $\frac{490,000}{10,000units}$)	14.95 ( $\frac{598,000}{40,000units}$)
Unit product	$93	$38.95

Thus, unit product cost of hubs is $93 and sprockets are $38.95.