Acneity &

Activity Based Costing

Timber Mart (TM) has a furniture manufacturing plant that uses activity-based costing. The system has the following activities:

Allocation Rate

Activity

Purchasing

order

Tooling

Assembling

Allocation Base Cost

Number of purchase orders

$ 60.00 per purcha

Number of machine hours

$ 5.00 per machine hay

Number of parts:

$0.50 per part

Packaging

Number of finished cabinets

$ 1.15 per cabinet

Suppose a newly established multi-story residential complex has asked TM for a bid on 15,00 wooden cabinets that would be installed in the new building.

TM will use a total of 15) purchase orders to complete 15,000 cabinets if the bid is accepte Each cabinet has 6 parts Direct materials cost per cabinet is $20. Direct labor is paid $10 pe hour for manufacturing and assembling the cabinets. Furthermore, 1.25 direct labor hours 1.75 machine hours will be required to complete each cabinet.

Requirements:

1) Compute the total cost TM will incur to purchase the needed materials and then prepa the parts for assembly by cutting, designing and refining finishing through the toolin process and then assemble the finished parts to package 15,000 wood cabinets. Als compute the average cost per cabinet.

2) For bidding, TM adds a 10% for selling and administrative expenses and a 30% prol markup to total cost. What total price will TM bid for the entire order?

3) Suppose that instead of an ABC system, 1M has a traditional product costing system th allocates indirect costs at the rate of $15 per direct labor hour. What price will TM b using this system's total cost a suming a 40% markup to total cost?

4) If the overhead cost is applied on the basis of machine hours instead of direct labor hou then what would be the total un t cost anil bid price per unit?

5) Use your answers to Requireme its 2, 3 and 4 to explain how ABC can help TM mak better decision about the bid price

Advanced Performance Managemen

UCP-Business Scb