Allocation of Overheads Edge Manufacturing produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labor dollars. For 2009, Edge Manufacturing compiled the following data for the two products:

Last year, Edge Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign.

She obtained the following ABC information for 20X5:

	Duluxe	Standard
Sales Price	$50,000	$400,000
Sale price per unit	$650.00	$475.00
Direct material and Labour Cost per unit	$180.00	$130,00
Manufacturing support cost per unit	$80,00	$120.00

Activity	Cost Driver	Cost	Total	Deluxe	Standard
Set Ups	# of set ups	$500,000	500	400	100
Machine Related	# of machine hours	$44,000.00	600,000	300,000	300,000
Packing	# of shipment	$5,000,000.00	250,000	50,000	200,000

N.B.: # = number

Required: a. Using the activity-based costing data presented above:

1. Compute the cost-driver rate for each overhead activity.

2. Compute the manufacturing overhead cost per unit for each type of entry door.

3. Compute the total cost to manufacture one unit of each type of entry door.

b. Why would the CFO consider an ABC analysis to be valuable?

Answer rating: 100% (QA)

1 Computation of the costdriver rate for each overhead activity Activity Cost Driver Cost Tota... View the full answer