Chapter (5)

1) MOH cost per unit

Activity Cost driver MOH Q. of MOH MOH allocated to MOH allocated to
(allocation base) costs cost rate Math. Fin.
driver
Machining Machine hours $375000 75000 5 25000x5=125000 50000x5=250000
Setup Number of prod. run 120000 100 1200 50x1200=60000 50x1200=60000
Inspection Inspection hours 105000 1500 70 1000x70=70000 500x70=35000
T.MOH cost 225000 345000
/ units 50000 100000
MOH cost/u 5.10 3.45

2) Manufacturing cost per unit

Math Fin.
DM costs/ unit 150000/50000=3 300000/100000=3
DL costs/ unit 50000/50000=1 100000/10000=1
MOH costs/ unit 5.10 3.45
Manuf. Cost/ unit 9.10 7.45

1
5-23: open door co. produces 2 types of doors, interior and exterior. The simple costing system allocates
indirect costs on the basis of machine hours. The information related to production for the recent year follows:

The co. wants to apply ABC system , 6 activities were identified as generating indirect costs: production
scheduling, material handling, machine setup, assembly, inspection and marketing the following data
related to the indirect costs activities:

1) Simple costing system:

 Total indirect costs= 95000+45000+25000+60000+8000+ 3%x(3200x125) + 3%x(1800*200) =
$255800
 Total machine hours = 5500 + 4500= 10000 machine hours
 indirect cost rate = 255800/10000= $25.58
Interior Exterior
DM costs 30*3200=96000 45*1800=81000
DL costs 3200x1.5x16=76800 1800x2.25x16=64800
Indirect costs allocated 5500x25.58=140960 4500x25.58=115110
Total costs 313490 260910
/ units 3200 1800
Cost per unit 97.97 144.95
2) ABC
Activity Cost driver cost Q. of cost rate cost allocated to cost allocated to
driver interior. exterior.
Prod. Sch. Prod. Runs 95000 125 760 40x760=30400 85x76=64600
Mat. Hand. Mart. moves 45000 240 187.5 72x187.5=13500 168x187.5=31500
Mach. Setup Mach. setup 25000 200 125 45x125=5625 155x125=19375
Assembly Mach. hours 60000 10000 6 5500x6=33000 4500x6=27000
Inspection No. of inspe. 8000 400 20 250x20=5000 150x20=3000
Marketing 3% x (3200x125)=12000 3% x (1800x200)=10800
T.indirect cost 99525 156275

2
 Interior Exterior
DM costs 30*3200=96000 45*1800=81000
DL costs 3200x1.5x16=76800 1800x2.25x16=64800
Indirect costs allocated 99525 156275
Total costs 272325 302075
/ units 3200 1800
Cost per unit 85.10 167.82

3
 1) Simple costing system
MOH rate = 453000/ 10500= $43.2
MOH allocated to Job 215= 40 x 43.2 =$1728
MOH allocated to Job 216= 60 x 43.2 = $2592

2) ABC system
Activity Cost driver MOH Q. of MOH MOH allocated to job MOH allocated to
(allocation base) costs cost rate 215. job 216.
driver
purchasing Purcha. Orders $70000 2000 35 25x35=875 8x35=280
mate. Hand. Mate. moves 87500 5000 17.5 10x17.5=175 4x17.5=70
Mach. Maint Machine hours 237300 10500 22.6 40x22.6=904 60x22.6=1356
Pro. Inspect. Inspections 18900 1200 15.75 9x15.75=141.75 3x15.75=47.25
Packaging Units produced 39900 3800 10.5 15x10.5=157.5 6x10.5=63
T.MOH cost 2253.25 1816.25

4
5-36: Pumpkin bags is a designer of high quality backpacks and purses. Budgeted information for the year
is as follow:

1 and 2
Cost hierarchy level Cost driver
DM- purses Output unit level costs Number of purses
DM-backpacks Output unit level costs Number of backpacks
DL- purses Output unit level costs Number of purses
DL-backpacks Output unit level costs Number of backpacks
Setup Batch level costs Number of batches
Shipping Batch level costs Number of batches
Design Product sustaining costs Number of designs
Plant utilities Facility sustaining costs Hours of production

5
4)
Activity Cost driver MOH Q. of MOH MOH allocated to MOH allocated to
(allocation base) costs cost rate backpacks purses
driver
Setup No. of batches $65930 190 347 130x347=45110 60x347=20820
Shipping No. of batches 73910 190 389 130x389=50570 60x389=23340
Design No. of designs 166000 4 41500 2x41500=83000 2x41500=83000
Plant utilities Hours of prod. 243000 4050 60 1450x60=87000 2600x60=156000

T.MOH cost 265680 283160

Backpacks Purses
DM costs 412920 379290
DL costs 120000 98000
MOH allocated 265680 283160
Total costs 798600 760450
/ units 6050 3350
Cost per unit 132 227