Problem #4 Chapter 5 ABC costing (24 points) NOTE This problem is not related to #3

Cogswell Cogs, Inc. estimates its overhead for the upcoming year to be $1,693,500 and will use machine hours as its base to apply overhead and estimates total machine usage will be 112,000 hours and estimates direct labor hours will be 43,500 hours. Cogswell makes three different models of its product Basic, Premium and Deluxe. The company anticipates making 10,000 units of Basic, 5,000 units of Premium and 1,000 units of Deluxe. The following information relates to Direct Material and Direct Labor for each unit for each model

Basic Premium Deluxe

Direct Material 5 pounds @ $4/pound 8 pounds @ $4.20/pound 10 pounds @ $4.40/pd

Direct Labor 2.5 hours @ $16/hour 3 hours @ $16/hour 3.5 hours @ $18/hour

Overhead 6 machine hours 8 machine hours 12 machine hours

Mr. Cogswell, the President and CEO of Cogswell Cogs, Inc. has been reading about Activity-based Costing (ABC) and thinks that perhaps the company should adopt it. He asked you to gather up information regarding the cost drivers in the factory and here is what you found

Costs Cost Driver Basic Premium Deluxe

Material handling $36,000 Deliveries 50 deliveries 25 deliveries 15 deliveries

Setup costs $66,000 Production runs 24 runs 16 runs 10 runs

Supervisors salaries $550,000 DL hours 55,000 hours 40,000 hours 30,000 hours

Utilities $660,000 Machine hours 54,000 hours 48,000 hours 18,000 hours

Inspection costs $72,000 Inspection hours 2000 hours 1000 hours 600 hours

Rent $220,000 Floor space 4,000 feet 7,000 feet 9,000 feet

Engineering $134,000 Engineering hours 2,000 hours 3,000 hours 5,000 hours

Using ABC costing, calculate total overhead dollars to be charged to each product, then at bottom calculate the total cost per unit, circle your final answer.

Cost Pools Basic Premium Deluxe

Material handling

Setup costs

Supervisors salaries

Utilities

Inspection costs

Rent

Engineering

Total Overhead in $

Total Overhead per unit

What is TOTAL COST per unit for each model using ABC?

Basic Premium Deluxe