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    GC 1 Alaire

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    DV Villan
    This document compares the traditional costing approach to an activity-based costing approach for two products - a TV board and PC board. Under the traditional approach, the TV board contribution margin is $30 per unit and the PC board is $59 per unit. Using activity-based costing, the TV board contribution margin is recalculated to be $39.34 per unit, an increase of $9.34. For the PC board, the contribution margin under activity-based costing is $39.85 per unit, a decrease of $19.15. Activity-based costing assigns overhead costs to products based on their use of activities and resources, providing a more accurate picture of product costs

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    GC 1 Alaire

    Uploaded by

    DV Villan
    89 views3 pages
    This document compares the traditional costing approach to an activity-based costing approach for two products - a TV board and PC board. Under the traditional approach, the TV board contribution margin is $30 per unit and the PC board is $59 per unit. Using activity-based costing, the TV board contribution margin is recalculated to be $39.34 per unit, an increase of $9.34. For the PC board, the contribution margin under activity-based costing is $39.85 per unit, a decrease of $19.15. Activity-based costing assigns overhead costs to products based on their use of activities and resources, providing a more accurate picture of product costs

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    Activity-based costing

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    GC-1-Alaire

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    This document compares the traditional costing approach to an activity-based costing approach for two products - a TV board and PC board. Under the traditional approach, the TV board contribution margin is $30 per unit and the PC board is $59 per unit. Using activity-based costing, the TV board contribution margin is recalculated to be $39.34 per unit, an increase of $9.34. For the PC board, the contribution margin under activity-based costing is $39.85 per unit, a decrease of $19.15. Activity-based costing assigns overhead costs to products based on their use of activities and resources, providing a more accurate picture of product costs

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    89 views3 pages

    GC 1 Alaire

    Uploaded by

    DV Villan
    This document compares the traditional costing approach to an activity-based costing approach for two products - a TV board and PC board. Under the traditional approach, the TV board contribution margin is $30 per unit and the PC board is $59 per unit. Using activity-based costing, the TV board contribution margin is recalculated to be $39.34 per unit, an increase of $9.34. For the PC board, the contribution margin under activity-based costing is $39.85 per unit, a decrease of $19.15. Activity-based costing assigns overhead costs to products based on their use of activities and resources, providing a more accurate picture of product costs

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    Alaire Corporation

    Activity-based Costing

    1. CURRENT (CONVENTIONAL) COST APPROACH


    (a) TV board

    Selling Price $ 150.00


    Cost/unit
    Direct material $ 80.00
    Direct Labor (1.5hrs x $14) 21.00
    Machine Time (0.5hrs x $10) 5.00
    Variable OH (1.5hrs x 1120k/280k) 6.00
    Materials Handling Charge (10% of material) 8.00 120.00
    Contribution Margin/unit $ 30.00
    x No. of Units 65,000
    Total Contribution 1,950,000.00

    (b) PC board
    Selling Price $ 300.00
    Cost/unit
    Direct material $ 140.00
    Direct Labor (4.0hrs x $14) 56.00
    Machine Time (1.5hrs x $10) 15.00
    Variable OH (4.0hrs x 1120k/280k) 16.00
    Materials Handling Charge (10% of material) 14.00 241.00
    Contribution Margin/unit $ 59.00
    x No. of Units 40,000
    Total Contribution 2,360,000.00

    2. ACTIVITY-BASED APPROACH

    Computation of activity rate:


    Materials Overhead
    $ 400,000.00 = $ 0.10 part
    Procurement
    4,000,000
    $ 220,000.00 = $ 2.00 board
    Production scheduling
    110,000
    $ 440,000.00 = $ 4.00 board
    Packaging & shipping
    110,000

    Variable Overhead
    $ 446,000.00 = $ 1.60 board
    Machine set-ups
    278,750
    $ 48,000.00 = $ 3.00 pound
    Hazardous waste
    16,000
    $ 560,000.00 = $ 3.50 insp.
    Quality control
    160,000
    $ 66,000.00 = $ 0.60 board
    General supplies
    110,000
    Manufacturing Overhead
    $ 1,200,000.00 = $ 0.40 part
    Machine insertion
    3,000,000
    $ 4,000,000.00 = $ 4.00 part
    Manual insertion
    1,000,000
    Wave soldering $ 132,000.00 = $ 1.20 board
    110,000

    (a) TV board
    Selling Price $ 150.00
    Cost/unit
    Direct material $ 80.00
    Materials OH
    Procurement (25 parts) 2.50
    Production scheduling 2.00
    Packaging & shipping 4.00 8.50
    Variable OH
    Machine set-ups (2 setups) 3.20
    Hazardous waste (0.02 lbs) 0.06
    Quality control 3.50
    General supplies 0.60 7.36
    Manufacturing OH
    Machine insertion (24 parts) 9.60
    Manual insertion 4.00
    Wave soldering 1.20 14.80 110.66
    Contribution Margin/unit $ 39.34
    x No. of Units 65,000
    Total Contribution $ 2,557,100.00

    (b) PC board

    Selling Price $ 300.00


    Cost/unit
    Direct material $ 140.00
    Materials OH
    Procurement (55 parts) 5.50
    Production scheduling 2.00
    Packaging & shipping 4.00 11.50
    Variable OH
    Machine set-ups (3 setups) 4.80
    Hazardous waste (0.35 lbs) 1.05
    Quality control (2 inspections) 7.00
    General supplies 0.60 13.45
    Manufacturing OH
    Machine insertion (35 parts) 14.00
    Manual insertion (20 parts) 80.00
    Wave soldering 1.20 95.20 260.15
    Contribution Margin/unit $ 39.85
    x No. of Units 40,000
    Total Contribution $ 1,594,000.00

    3. Comparison of the results of the two costing methods

    xxxxx

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