# Hoover Company uses activity-based costing and provides this information: Manufacturing Activity Cost Driver Overhead Rate Materials handling

## Question:

Hoover Company uses activity-based costing and provides this information:

 Manufacturing Activity Cost Driver Overhead Rate Materials handling Number of parts $0.45 Machinery Number of machine-hours 51.00 Assembly Number of parts 2.85 Inspection Number of finished units 30.00 Hoover has just completed 80 units of a component for a customer. Each unit required 105 parts and 3 machine-hours. The prime cost is$1,200 per finished unit. All other manufacturing costs are classified as manufacturing overhead.

 Customer order specifics: Number of units = 80 No. of parts/unit produced = 105 No. of mhr/unit produced = 3 Prime cost (DM + DL)/unit = $1,200 Upstream cost (e.g., R&D)/unit =$180 Downstream cost/unit = $250 Required 1. Compute the total manufacturing costs and the unit costs of the 80 units just completed using ABC costing. 2. In addition to the manufacturing costs, the firm has determined that the total cost of upstream activities including research and development and product design is$180 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service is \$250 per unit. Compute the full product cost per unit, including upstream, manufacturing, and downstream activities. What are the strategic implications of this new cost result?

3. Explain to Hoover Company the usefulness of calculating the total value-chain cost and of knowing costs of different value-creatingactivities.

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Related Book For

## Cost management a strategic approach

ISBN: 978-0073526942

5th edition

Authors: Edward J. Blocher, David E. Stout, Gary Cokins

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