For many years Tinor Company has used a manufacturing overhead rate based on direct labor hours. A
Question:
For many years Tinor Company has used a manufacturing overhead rate based on direct labor hours. A new plant accountant has suggested that the company may be able to assign overhead costs to products more accurately by using an activity-based costing system. The accountant explains that by creating an overhead rate for each production activity that causes overhead costs, the resulting product costs will reflect an accurate measure of overhead cost. The direct material cost is P120 per unit. The budgeted hours is 8,030 direct labor hours. The accountant has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for 2012.
ACTIVITY CENTERS | COSTS | ACTIVITY DRIVERS |
Materials handling | 60,000 | 1,200 times handled |
Scheduling and setups | 80,000 | 400 setups |
Design section | 10,750 | 100 changes |
No. of parts | 50,000 | 500 parts |
P 200,750 |
The company's products and other operating statistics follow:
Prod | Qty Produced | DLH Used | DL Cost | No. of time handled | No. of parts | No. of Changes | No. of setups |
A | 50 | 100 | 6,000 | 20 | 6 | 3 | 5 |
B | 100 | 300 | 18,000 | 40 | 10 | 5 | 7 |
REQUIREMENT:
a) Compute the overhead to be allocated to each product using direct labor hours as the allocation base.
b) Compute the overhead to be allocated to each product using activity based costing.
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr