
Concept explainers
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
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 –
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 |
Thus, the costs for fun with fractions and count calculus has been calculated.
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 –
For Count Calculus –
Thus, per unit cost for each product line has been computed.
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
Thus, the profit for Count Calculus if it is sold for $ 59.95 per unit has been determined.
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.
Thus, the minimum price for Fun with Fractions has been determined.
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