The ABC Manufacturing Company produces two products, S-101 and C-110. You have obtained the following information regarding the annual manufacturing support (i.e., factory overhead) costs associated with the manufacturing process used to produce these two products:

Estimated production for the coming year: S-101 = 100,000 units; C-110 = 40,000 units.

Required

1. Prepare an Excel spreadsheet that would provide ABC allocation rates based on budgeted activity units for the coming year. (a) What is the budgeted manufacturing support cost per unit of S-101? (b) What is the budgeted manufacturing support cost per unit of C-110?

2. Using your spreadsheet, recalculate the ABC allocation rates, this time based on practical capacity as the denominator activity level. (a) What is the budgeted manufacturing support cost per unit of S-101? (b) What is the budgeted manufacturing support cost per unit of C-110?

3. Compute, for each cost pool listed above, the difference between the budgeted cost for the year and the total cost allocated to production. How do you interpret these variances(differences)?

Transcribed Image Text:

Practical Budgeted Activities Budgeted Activity Measure Capacity for the Coming Year Costs (Cost Driver) Cost Pools S-101 C-110 Setup activity $ 250,000 Setup hours 5,000 2,500 2,350 $ 50,000 Number of shipments 775 Packing and shipping 2,000 1,200 $ 30,000 Number of batches 700 Inspection 1,000 250 $ 750,000 Units produced Machining 150,000 100,000 40,000 $ 40,000 Number of orders Purchase ordering 300 50 110 $1,120,000 Total