OXALES,ALLIAH

Cost Accounting
Activity-Based Costing
1. Amcar Industries manufactures dining chairs and tables. The following
information is available:
Dining Chairs Tables Total
Cost
Machine setups 200 600 P 48,000
Inspections 250 470 72,000
Labor hours 2,600 2,400

Amcar is considering switching from one overhead rate based on labor

hours to activity-based costing.

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Instructions
Perform the following analyses for these two components of overhead:

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a. Compute total machine setups and inspection costs assigned to
each product, using a single overhead rate.

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b. Compute total machine setups and inspection costs assigned to
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each product, using activity-based costing.
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c. Comment on your findings.
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Ans:
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A. Single overhead rate:

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Total ManufacturingOverhead
Plantwide Overhead Rate =
Direct Labor Hours
120,000
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=
2,600+ 2,400
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= P24 per labor hour

DINING CHAIRS:
Total Machine setups and Inspections Cost= Plantwide overhead rate *
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labor hours
= P24*2600
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=P62,400
TABLES:
Total Machine setups and Inspections Cost= Plantwide overhead rate *
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labor hours
= P24*2400
=P57,600

B. Activity Based Costing

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 Dining Chairs Tables
Machine Set-ups (P48,000*200/800)=12,000 (P48,000*600/800)=36,000
Inspections (P72,000*250/720)=25,000 (P72,000*470/720)=47,000
Total Machine Set-ups P37,000 P83,000
and Inspections Cost

C. Comment Your Findings

Single-Overhead rate Activity-Based Costing
(Total Machine set-ups (Total Machine set-ups
and inspection cost) and inspection cost)
Dining Chairs P62,400 P37,000
Tables P57,600 P83,000

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As per looking at the data. The Single-Overhead Rate gives you a very

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simple computation in allocating overhead to product. The difference is really
minimal. While in Activity-based costing, it is clearly showing the big

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difference of the allocation between each product. The table has larger cost
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allocation since it is also evident that they use larger numbers of machine
set-ups and inspection. Hence, using Activity-Based Costing for allocating
overhead to product is more accurate than using a single-overhead rate. This
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will help decision makers to set price on the product more accurately.
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2. Season Delights manufactures a wide variety of holiday and seasonal

decorative items. Season’s activity-based costing overhead rates are:
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Purchasing P380 per order

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Storing P2 per square foot/days

Machining P100 per machine hour
Supervision P5 per direct labor hour
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The Snow Man project involved three purchase orders, 4,000 square
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feet/days, 60 machine hours, and 40 direct labor hours. The cost of direct
materials on the job was P19,000 and the direct labor rate is P30 per hour.
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Instructions
Determine the total cost of the Snow Man project.
Ans:
Direct Materials P19,000
Direct Labor (P30*40) 1,200
Purchasing (P380*3) 1,140
Storing (P2*4000) 8,000

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 Machining (P100*60) 6,000
Supervision (P5*40) 200
Total Cost: P35,540

3. Cohan Tires manufactures tires for dune buggies and has two different
products, cubby tires and mooth tires. The company produces 5,000
cubby tires and 10,000 mooth tires each year and incurs P167,000 of
overhead costs. The following information is available:
Activity Total Cost Cost Driver

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Materials handling P60,000 Number of requisitions
Machine setups 50,000 Number of setups

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Quality inspections 57,000 Number of
inspections

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For the cubby tires, the company has 400 requisitions, 200 setups, and 200
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inspections. The mooth tires require 600 requisitions, 300 setups, and 400
inspections.
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Instructions
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Determine the overhead rate for each activity.

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ANS:
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Total Materials handlingCost

A. Activity Rate for Materials Handling=
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no .requisition for 2 dif . products

P 60,000
=
400+600
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=P60 per requisition

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Total Machine set −ups Cost

B. Activity Rate for Machine set-ups=
no . set−ups for 2 dif products
P50,000
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=
200+ 300
=P100 per set-up
Total Quality inspections
C. Activity Rate for Quality inspections=
no . of inspections for 2 dif . products

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 P 57,000
=
200+ 400
=P95 per inspection

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4. Johoma Manufacturing has five activity cost pools and two products (a
budget tape vacuum and a deluxe tape vacuum). Information is

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presented below:

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Cost Drivers by
Product rs e
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Activity Cost Pool Cost Driver Est. Overhead Budget
Deluxe
Ordering and Receiving Orders P 120,000 600
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400
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Machine Setup Setups 297,000 500

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400
Machining Machine hours 1,000,000 150,000
100,000
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Assembly Parts 1,400,00 1,200,000

800,000
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Inspection Inspections 300,00 550

450
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Instructions:
Compute the overhead cost per unit for each product. Production is
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700,000 units of Budget and 200,000 units of Deluxe. Round your answer to
the nearest cent.
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BUDGET (700,000) DELUX (200,000)

Ordering (120,000*600/1000) P72,000 (120,000*400/1000) P48,000
and
Receiving
Machine (297,000*500/900) (297,000*400/900) 132,000
Setup 165,000
Machining (1,000,000*150,000/250, (1,000,000*100,000/250, 400,000

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 000) 600,000 000)
Assembly (1,400,000*1,200,000*2, (1,400,000*800,000/2,00 560,000
000,000) 840,000 0,000)
Inspections (300,000*550/1,000) (300,000*450/1000) 135,000
165,000
Total P1,842,0 P1,275,0
Overhead 00 00
Cost
Total (1,842,000/700,000) P2.63 (1,275,000/200,000) P6.38
overhead
per unit

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