Calculating Activity-based Costing Overhead Rates
Assume that manufacturing overhead for Glassman Company in the previous exercise consisted of the following activities and costs:
Setup (1,000 setup hours) $144,000
Production scheduling (400 batches) 60,000
Production engineering (60 change orders) 120,000
Supervision (2,000 direct labor hours) 56,000
Machine maintenance (12,000 machine hours) 84,000
Total activity costs $464,000
The following additional data were provided for Job 845:
Direct materials costs $7,000
Direct labor cost (5 Milling direct labor hours;
35 Finishing direct labor hours) $1000
Setup hours 5 hours
Production scheduling 1 batch
Machine hours used (25 Milling machine hours;
5 Finishing machine hours 30 hours
Production engineering 3 change orders
a. Calculate the cost per unit of activity driver for each activity cost category.
b. Calculate the cost of Job 845 using ABC to assign the overhead costs.
c. Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours calculated in the previous exercise.
d. Calculate the cost of Job 845 using the machine hour departmental overhead rate for the Milling Department and a direct labor hour overhead rate for the Finishing Department.
Traditional Product Costing versus Activity Based Costing
Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $204,000 consisting of the following activity cost pools for the month.
Activity Center Activity Costs Cost Driver Activity Level
Assembly setup $45,000 Setup hours 1,500
Material Handling 15,000 Number of moves 300
Assembly 120,000 Assembly hours 12,000
Maintenance 24,000 Maintenance hours 1,200
Total direct labor hours used during the month were 8,000. Panasonic produced many different electronic products, including the following two products produced during the current month:
Model x301 Modelz205
Units produced 1,000 1,000
Direct material cost $15,000 $15,000
Direct Labor Cost $12,500 $12,500
Direct Labor hours 500 500
Setup hours 50 100
Material moves 25 50
Assembly hours 800 800
Maintenance hours 10 40
a. Calculate the total cost per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.
b. Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.
c. Comment on the accuracy of the two methods for determining costs.
d. Discuss some of the strategic implications of your answers to the previous requirements.