Activity - Accounting For Overhead: Problem 1
Activity - Accounting For Overhead: Problem 1
Problem 1
The Circle Company estimates factory overhead at 450,000 for the next fiscal year. It is
estimated that 90,000 units will be produced at a material cost of 600,000. Conversion will
require an estimated 100,000 direct labor hours at a cost of 3 per hour with 45,000 machine
hours.
The company actual factory overhead for the year was 600,000.
(1)
450,000 / 600,000 = 0.75 per 1-peso material cost / 75% of material cost
(2)
450,000 / 90,000 = 5 per units produced
(3)
450,000 / 45,000 = 10 per machine hours
(4)
100,000 x 3 = 300,000
450,000 / 300,000 = 1.5 per 1-peso labor cost
(5)
450,000 / 100,000 = 4.5 per labor hours
(1)
75,000 x 75% = 56,250
(2)
20,000 x 5 = 100,000
(3)
10,000 x 10 = 100,000
(4)
30,000 x 1.5 = 45,000
(5)
7,500 x 4.5 = 33,750
Problem 2
The Chromosome manufacturing Company produces two products, X and Y. The company
president, Gene Mutation, is concerned about the fierce competition in the market for product X.
he notes that competitors are selling X for a price well below Chromosome’s price of 12.70. At
the same time, he notes that competitors are pricing product Y almost twice as high as
Chromosome’s price of 12.50.
Mr. Mutation has obtained the following data for a recent time period:
Product X Product Y
Number of units 10,000 4,000
Direct materials cost per unit 3.23 3.65
Direct labor cost per unit 2.25 2.10
Direct labor hours 10,000 2,500
Machine hours 2,100 2,800
Inspection hours 80 100
Purchase orders 10 30
Mr. Mutation has learned that overhead costs are assigned to products on the basis of direct labor
hours. The overhead costs for this time period consisted of the following items:
1. Using the direct labor hours to allocate overhead cost, determine the unit cost of Product X.
-73,200 / 10,000 = 7.32
2. Using the direct labor hours to allocate overhead cost, determine the unit cost of Product Y.
-73,200 / 4,000 = 18.3
3. Using the activity-based costing; determine the unit cost of Product X.
-7.32 x 12.70 = 92.96
4. Using the activity-based costing; determine the unit cost of Product Y.
-18.3 x 12.50 = 228.75