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

Drilling has just completed 80 units of a component for a customer. Each unit required 100 parts and 3 machine hours. The prime cost is $1,300 per finished unit. All other manufacturing costs are classified as manufacturing overhead.
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 fi rm 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 $300 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 Drilling Company the usefulness of calculating the total value-chain cost and of knowing costs of different value-creating activities.

Transcribed Image Text:

Manufacturing Activity Materials handling Machinery Assembly Inspection Cost Driver Number of parts Number of machine hours Number of parts Number of finished units Overhead Rate S 0.60 51.00 2.85 30.00