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    ABC Costing

    Uploaded by

    Ishan
    The document calculates unit costs for two products, Product S and Product W, using both a traditional overhead allocation method and an activity-based costing method. Using traditional overhead allocation, the unit cost of Product S is $32.50 and Product W is $53.00. However, using activity-based costing, which allocates overhead costs based on cost pools and expected activity levels, the unit cost of Product S is recalculated to be $29.83 while Product W's cost increases to $67.07.

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    ABC Costing

    Uploaded by

    Ishan
    27 views4 pages
    The document calculates unit costs for two products, Product S and Product W, using both a traditional overhead allocation method and an activity-based costing method. Using traditional overhead allocation, the unit cost of Product S is $32.50 and Product W is $53.00. However, using activity-based costing, which allocates overhead costs based on cost pools and expected activity levels, the unit cost of Product S is recalculated to be $29.83 while Product W's cost increases to $67.07.

    Original Description:

    ABC-2

    Original Title

    ABC costing

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    The document calculates unit costs for two products, Product S and Product W, using both a traditional overhead allocation method and an activity-based costing method. Using traditional overhead allocation, the unit cost of Product S is $32.50 and Product W is $53.00. However, using activity-based costing, which allocates overhead costs based on cost pools and expected activity levels, the unit cost of Product S is recalculated to be $29.83 while Product W's cost increases to $67.07.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    27 views4 pages

    ABC Costing

    Uploaded by

    Ishan
    The document calculates unit costs for two products, Product S and Product W, using both a traditional overhead allocation method and an activity-based costing method. Using traditional overhead allocation, the unit cost of Product S is $32.50 and Product W is $53.00. However, using activity-based costing, which allocates overhead costs based on cost pools and expected activity levels, the unit cost of Product S is recalculated to be $29.83 while Product W's cost increases to $67.07.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Predetermined Overhead rate = Estimated Overhead ÷ Estimated Direct labor hours

    = 750,000 ÷ 50,000
    = 15 per direct labor hour

    Overhead applied to product = Direct labor hours require per unit × Predetermined Overhead rated

    Overhead applied
    Direct labor hours Predetermined Overhead applied
    required per unit (a) Overhead rate (b) (a×b)
    Product S 0.5 15 7.5
    Product W 1 15 15

    Calculation of Unit Cost


    Product S Product W
    Direct material 15 25
    Direct labor 10 13
    Overhead 7.5 15
    Cost per unit 32.50 53

    b)
    Calculation of Cost per activity
    Estimated Overhead Total Expected Cost per activity
    Activity Cost pools Costs (a) Activity (b) (a/b)
    Machine Setup 250,000 2,500 100.00
    Purchases Orders 50,000 750 66.67
    Machine hours 105,000 14,000 7.50
    Maintenance requested 345,000 3,000 115.00
    Total 750,000

    Cost applied to each product

    Product S
    Cost per activity Expected Activity
    (a) (b) Total Cost (a×b)
    Machine Setup 100.00 900 90,000
    Purchases Orders 66.67 550 36,667
    Machine hours 7.50 3,500 26,250
    Maintenance requested 115.00 1,400 161,000
    Total Cost (d) 313,917
    Total Unit produce (e ) 65,000
    Cost per unit (d/e) 4.83
    Calculation of Cost per unit
    Product S Product W
    Direct material 15.00 25.00
    Direct labor 10.00 13.00
    Overhead 4.83 29.07
    Cost per unit 29.83 67.07

    Analysis
    Units cost of product S is high under current method of allocation which i.e. 32.50 as compared to unit cost in Activity based co
    While the unit cost of product W is lower in current method i.e. 53.00 whereas in Acitivity based costing it is 67.07
    verhead rated

    r activity
    (a/b)
    Per Machine setup
    Per Purchase Order
    Per Machine hour
    Per maintenance requested

    Product W

    Expected Activity (c) Total Cost (a×c)


    1,600 160,000
    200 13,333
    10,500 78,750
    1,600 184,000
    436,083
    15,000
    29.07
    ed to unit cost in Activity based costing approach i.e. 29.83.
    sed costing it is 67.07

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