Chapter C, Problem 5BPSB

To determine

Concept Introduction:

Activity based costing:

Activity based costing can be defined as the costing that assigns cost by assigning costs using factors like cost pools related to a particular overhead and then assign the costs to the products.

Manufacturing overheads:

Manufacturing overheads can be defined as the overheads incurred during the manufacturing process of the product. Only the plant or factory related expenses are termed as manufacturing overheads.

Predetermined overhead rate:

Predetermined overhead rate can defined as the rate allocated on the bases of estimated overheads and a base that can used to determine per unit of allocation of overhead of the base.

Requirement 1

To compute:

Cost of Fun with fractions and Count Calculus using ABC

Answer to Problem 5BPSB

Solution:

Cost of –

• Fun with Fractions = $ 1,240,200

• Count Calculus = $ 275,760

Explanation of Solution

The above answer can be explained as under –

For Fun with Fractions –

Given,

• Component costs = $ 495,000

• Assembly labor = $ 244,800

• Maintenance = $ 100,800

• Packing Materials = $ 460,800

• Shipping = $ 27,360

• Machine Setup = 187,200

• Production volume – Fun with fractions = 150,000 units and Count Calculus = 10,000 units

• Components – Fun with fractions = 450,000 parts and Count Calculus = 100,000 parts

• Direct Labor hours – Fun with fractions =15,000 DLH and Count Calculus = 2,000 DLH

• Packing materials – Fun with fractions = 150,000 boxes and Count Calculus = 10,000 boxes

• Shipping cartons – Fun with fractions = 100 units per carton and Count Calculus = 25 units per carton

• Machine setups – Fun with fractions = 52 setups and Count Calculus = 52 setups

• Machine hours – Fun with fractions = 5,000 MH and Count Calculus = 2,000 MH

	Fun with Fractions (A)	Count Calculus (B)	Total (C) = (A) X (B)
Production volume - Units	1,50,000	10,000	1,60,000
Components – Parts	4,50,000	1,00,000	5,50,000
Direct Labour hours	15,000	2,000	17,000
Packing materials	1,50,000	10,000	1,60,000
Shipping cartons –	100	25	125
Machine setups	52	52	104
Machine hours	5,000	2,000	7,000

	Overheads (D)	Driver	Total (C)	Cost per activity (E) = (D)/(C)
Component costs	4,95,000	Parts	5,50,000	0.9
Assembly labor	2,44,800	Direct Labor hours	17,000	14.4
Maintenance	1,00,800	Machine hours	7,000	14.4
Packing Materials	4,60,800	Boxes	1,60,000	2.88
Shipping	27,360	Cartons	1,900	14.4
Machine Setup	1,87,200	Setups	104	1800

The number of cartons are calculated as under –

$\begin{array}{l}NumberofcartonsrequiredforFunwithfractions=\frac{Totalunits}{UnitsinOnecarton}\hfill \\ NumberofcartonsrequiredforFunwithfractions=\frac{150,000units}{100unitsinonecarton}\hfill \\ NumberofcartonsrequiredforFunwithfractions=1,500carton\hfill \\ NumberofcartonsrequiredforCountCalculus=\frac{Totalunits}{UnitsinOnecarton}\hfill \\ NumberofcartonsrequiredforCountCalculus=\frac{10,000units}{25unitsinonecarton}\hfill \\ NumberofcartonsrequiredforCountCalculus=400carton\hfill \\ Totalnumberofcartons=\left(\begin{array}{l}NumberofcartonsrequiredforFunwithfractions\\ +NumberofcartonsrequiredforCountCalculus\end{array}\right)\hfill \\ Totalnumberofcartons=1,500cartons+400cartons\hfill \\ Totalnumberofcartons=1,900cartons\hfill \end{array}$

	Cost per activity	Fun with Fractions	Total cost	Count Calculus	Total cost
Component costs	0.9	450,000	405,000	100,000	90,000
Assembly labor	14.4	15000	216,000	2000	28,800
Maintenance	14.4	5000	72,000	2000	28,800
Packing Materials	2.88	150000	432,000	10000	28,800
Shipping	14.4	1500	21,600	400	5760
Machine Setup	1800	52	93,600	52	93,600
Total overheads			1,240,200		275,760

Conclusion

Thus, the costs for fun with fractions and count calculus has been calculated.

To determine

Requirement 2

To compute:

Cost per unit for –

• Fun with Fractions

• Count Calculus

Answer to Problem 5BPSB

Solution:

Cost per unit for –

• Fun with Fractions = $ 8.27

• Count Calculus = $ 27.58

Explanation of Solution

The above answers can be explained as under –

Given,

• Total cost for Fun with Fractions = $ 1,240,200

• Total costs for Count Calculus = $ 275,760

• Units produced for Fun with Fractions = 150,000 units

• Units produced for Count Calculus = 10,000 units

For Fun with Fractions –

$\begin{array}{l}Costperunit=\frac{TotalcostforFunwithFractions}{UnitsproducedforFunwithFractions}\hfill \\ Costperunit=\frac{\$1,240,200}{150,000units}\hfill \\ Costperunit=\$8.27\hfill \end{array}$

For Count Calculus –

$\begin{array}{l}Costperunit=\frac{TotalcostforFunwithFractions}{UnitsproducedforFunwithFractions}\hfill \\ Costperunit=\frac{\$275,760}{10,000units}\hfill \\ Costperunit=\$\text{ 27}\text{.58}\hfill \end{array}$

Conclusion

Thus, per unit cost for each product line has been computed.

To determine

Requirement 3

To determine:

Profit for Count Calculus if it is sold for $ 59.95 per unit

Answer to Problem 5BPSB

Solution:

The profit for Count Calculus if it is sold for $ 59.95 per unit = $ 32.37 per unit

Explanation of Solution

The above answer can be explained as under –

Given,

• Cost per unit = $ 27.58

• Selling price per unit = $ 59.95

$\begin{array}{l}Profit=Sellingpriceperunit-Costperunit\hfill \\ Profit=\$59.95-\$27.58\hfill \\ Profit=\$32.37\hfill \end{array}$

Conclusion

Thus, the profit for Count Calculus if it is sold for $ 59.95 per unit has been determined.

To determine

Requirement 4

To determine:

Minimum price that the company should set per unit of Fun with Fractions

Answer to Problem 5BPSB

Solution:

The minimum price that the company should set per unit of Fun with Fractions is $ 8.27 per unit

Explanation of Solution

The above answer can be explained as the minimum price that the company should charge from its customers for Fun with Fractions at least be the amount which can covers its cost. The total cost per unit for Fun with Fractions is $ 8.27, thus it should charge a minimum price of $ 8.27 per unit. If the company charges above $ 8.27, the product will be profitable.

Conclusion

Thus, the minimum price for Fun with Fractions has been determined.