Name: Daniel Jan A. Apuya
Cost Accounting and Control
ACTIVITY-BASED COSTING EXERCISE
PROBLEM 1. Dragon Furniture Company has identified activity centers to which overhead costs are
assigned. The following data are available:
ACTIVITY CENTERS
COSTS
ACTIVITY DRIVERS
Utilities
P300,000
60,000 machine hours
Scheduling and Setup
273,000
780 setups
Material Handling
640,000
1,600,000 pounds of materials
The Company’s products and other operating statistics follow:
PRODUCT
Prime costs
Machine hours
Number of setups
Pounds of materials
Number of units
produced
Direct labor hours
A
P 80,000
30,000
130
500,000
40,000
B
P80,000
10,000
380
300,000
20,000
C
P90,000
20,000
270
800,000
60,000
32,000
18,000
50,000
Required:
(1) Using ABC Method, determine the total production costs for each product. Determine also
the unit cost of each product.
(2) Using Traditional Method of costing using direct labor hours as basis of applying overhead,
what is the unit cost of Product A, B and C.
PROBLEM 2 ABC and CONVENTIONAL METHOD
The Accountant of Camera Film Company has established the following activity cost of pools and cost
drivers:
Activity Cost Pool
Machine setups
Budgeted
Overhead Cost
P200,000
Materials
handling
Hazardous waste
control
P100,000
Quality control
P75,000
P50,000
Cost Drivers
Number of
setups
Weight of raw
materials
Weight of
hazardous
chemicals used
Number of
inspections
Budgeted Level
for Cost Driver
100
Pool Rate
50,000 lbs
P2/lb
10,000 lbs
P5/lb
1,000
P75/inspection
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P2,000/setup
Other overhead
P200,000
Machine hours
20,000 hours
P10/machine
costs
hour
An order for 2,000 boxes of film development chemicals has the following production requirements:
Machine setups
4
Raw materials
10,000 pounds
Hazardous materials
2,000 pounds
Inspections
20
Machine hours
500
Direct manufacturing cost actually incurred to produce 2,000 pounds are the following:
Direct materials
Direct labor
P425,000
400,000
Before the company adopts the ABC approach of costing, the traditional approach of allocating
overhead, which is based on machine hours, is being used.
Required:
a. The amount of overhead applied to each box of chemical under:
(1) ABC method is _______________________
(2) Traditional costing method is ___________________
b. The manufacturing cost per box under:
(1) ABC method is ________________________
(2) Traditional costing ______________________
PROBLEM 3. Activity Based Costing
ABC Company has budgeted 84,000 machine hours in the production of 3 product lines for the
coming year. Other budgeted information is summarized below:
Machine related costs
P2,520,000
Materials receiving order costs
1,255,800
Production orders/Engineering costs
1,080,000
Production run/Setup costs
112,200
Inspection costs
576,000
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The following is a summary of actual data for the current year
Units produced
Production costs per
unit:
Materials
Direct Labor
MH required per unit
Activities per product
line:
Receiving orders
Production orders
Setup
Inspections
P1
28,000
P2
18,000
P3
6,000
P60
36
1.5
P45
42
2
39
30
1
48
42
12
24
120
36
24
12
600
57
66
60
Required: Determine the following:
(1) Using Activity Based Costing, determine the overhead applied to each product line P1, P2
and P3
(2) Using Activity Based Costing, determine the total manufacturing costs per product line
PROBLEM 4
Levels of cost drivers. Each of the following is a potential activity driver. Identify the most likely level
of each driver with U for a unit-level driver, B for a batch-level diver and P for a product-level driver.
(a) Loads of materials moved
P
(b) Materials cost
U
(c) Pounds of finished product produced
B
(d) Shipments to customers (where no finished goods inventory is maintained
P
(e) Number of part numbers used
U
(f) Machine hours
B
(g) Purchase orders issued (where large materials inventories are maintained
B
(h) Direct costs
B
(i) Pieces inspected (where output is 100% inspected)
B
(j) Pieces inspected (where only the first piece is inspected after each setup)
U
Problem 5. Levels of cost drivers.
Each of the following is a potential activity driver. Identify most likely level of each driver with
U for a unit-level driver, B for a batch-level driver and P for a product-level driver.
(a) Pounds of materials used
P
(b) Work orders
B
(c) Direct labor hours
B
(d) Total value added
U
(e) Units produced
P
(f) Machine setups
B
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(g) Design changes
(h) Marketing promotions
P
P
Problem 6. Value-added and non-value added activities. Pleasantville Company’s sole piece of
machine housing made from sheet metal, is produced in the following steps:
(a) Metal received and inspected at receiving dock
non-value added activity
(b) Metal moved to stores inventory
non-value added activity
(c) Metal placed into stores
non-value added activity
(d) Metal retrieved from stores as needed
non-value added activity
(e) Metal moved to Cutting Department
value-added activity
(f) Metal placed in queue to await cutting machine
non-value added activity
(g) Pieces cut to size
value-added activity
(h) Placed on hand truck to await material handler
non-value added activity
(i) Moved to Deburring Department
value-added activity
(j) Placed in queue to await deburring
non-value added activity
(k) Sandblasted to remove burrs from cut edges
value-added activity
(l) Placed on hand truck to await material handler
non-value added activity
(m) Moved to in-process storage area
non-value added activity
(n) Moved to Inspection Department
non-value added activity
(o) Placed in queue to await inspection
non-value added activity
(p) Inspected
non-value added activity
(q) Placed on hand truck to await material handler
non-value added activity
(r) Moved to in-process storage area
non-value added activity
(s) Moved to Drilling Department
value-added activity
(t) Placed in queue to await drilling machine
non-value added activity
(u) Holes drilled to accommodate customer’s fasteners
value-added activity
(v) Placed on hand truck to await material handler
non-value added activity
(w) Moved to Deburring Department
value-added activity
(x) Placed in queue to await deburring machine
value-added activity
(y) Sandblasted to remove burrs from edges of holes
value-added activity
(z) Placed on hand truck to await deburring machine
non-value added activity
(aa) Moved to in-process storage area
non-value added activity
(bb)Moved to Painting Department
value-added activity
(cc)Placed in queue to await painting
non-value added activity
(dd) Painted and oven-dried
value-added activity
(ee) Placed on hand truck to await material handler
non-value added activity
(ff) Moved to in-process storage area
non-value added activity
(gg) Moved to Inspection Department
non-value added activity
(hh) Placed in queue to await inspection
non-value added activity
(ii) Inspected
non-value added activity
(jj) Placed on hand truck to await material handler
non-value added activity
(kk) Moved to shipping dock
non-value added activity
Required : Identify each activity as value-added activity or non-value added activity
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Problem 1
1.
Utilities
Scheduling and Setup
Materials Handling
P 300,000/ 60,000
P 273,000/ 780
P 640,000/ 1,600,000
=
=
=
P 5/machine hour
P 350/ setup
P 0.40/ pound
Activity Center
Product A
Product B
Product C
Total
Utilities:
30,000 x 5
=P 150,000
10,000 x 5
= P 50,000
20,000 x 5
= P 100,000
P 300,000
Scheduling and
Setup
130 x 350
= 45,000
380 x 350
= 133,000
270 x 350
= 94,000
P 273,000
Material
Handling
500,000 x .4
= 200,000
300,000 x .4
= 120,000
800,000 x .4
= 320,000
P 640,000
Total
P 395,000
P 303,000
P 514,500
P 1,213,000
Total Cost per Product
Cost Item
Prime Cost
Overhead
Total Cost
Product A
P 80,000
395,000
P 475,000
Product B
P 80,000
303,000
P 383,000
Product C
P 90,000
514,500
P 604,500
2.
Predetermined Overhead Rate
1,213,000 / 100,000 = P 12.13/DLH
Product A
Prime Cost
P 80,000
Overhead Cost
(32,000 x 12.13)
388,160
Total
P 468,160
Divided by
Units Produced
40,000
Cost per unit
P 11.70
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Product B
Prime Cost
Overhead Cost
( 18,000 x 12.13)
Total
Divided by
Units Produced
Cost per unit
Product C
Prime Cost
Overhead Cost
(50,000 x 12.13)
Total
Divided by
Units Produced
Cost per unit
P 80,000
218,340
P 298,340
20,000
P 14.92
P 90,000
606,500
P 696,500
30,000
P 13.93
Problem 2
ABC Method
A.
Activity Cost
Pool
Budgeted
Overhead Cost
Total Activities
Cost per
Activity
Number of
Activities
Total
Machine Setups
200,000
100
2,000/ setup
4
8,000
Materials
Handling
Hazardous
waste control
Quality control
100,000
50,000 lbs
2/lbs
10,000 lbs
20,000
50,000
10,000 lbs
5/lbs
2,000 lbs
10,000
75,000
1,000
75/ inspection
20
1,500
Other overhead
costs
200,000
20,000 hrs
10/machine hr
500 hours
5,000
Total Applied
Overhead
44,500
Traditional Method
Machine Setups
Materials Handling
Hazardous Waste Control
Quality Control
Other Overhead Costs
Total Overhead
P 200,000
100,000
50,000
75,000
200,000
P 625,000
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Divided by
Number of Machine hours
Overhead Rate
Actual Machine hours
Total Applied Overhead
B.
ABC Method
Direct Materials
Direct Labor
Overhead Cost
Total Manufacturing Cost
Number of Boxes
Manufacturing cost per box
Traditional Method
Direct Materials
Direct Labor
Overhead Cost
Total Manufacturing Cost
Number of Boxes
Manufacturing cost per box
20,000
31.25
500
P 15,625
P 425,000
400,000
44,500
P 869,500
2,000
P 434.75
P 425,000
400,000
15,625
P 460,625
2,000
P 420.31
Problem 3
P1
Activity
Cost
Total Activities
Cost per
Activity
Number of
Activities
Total
Machine related
cost
P2,520,000
84,000
30
42,000
1,260,000
Materials receiving
order costs
Production
orders/Engineering
costs
Production
run/Setup costs
Inspection costs
1,255,800
768
1,635
48
78,480
1,080,000
135
8,000
42
336,000
112,200
102
1,100
12
13,200
576,000
96
6,000
24
144,000
Total Applied
Overhead
P2
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1,831,680
Activity
Cost
Total Activities
Cost per
Activity
Number of
Activities
Total
Machine related
cost
P2,520,000
84,000
30
36,000
1,080,000
Materials receiving
order costs
Production
orders/Engineering
costs
Production
run/Setup costs
Inspection costs
1,255,800
768
1,635
120
196,200
1,080,000
135
8,000
36
288,000
112,200
102
1,100
24
264,000
576,000
96
6,000
12
72,000
Total Applied
Overhead
1,662,600
P3
Activity
Cost
Total Activities
Cost per
Activity
Number of
Activities
Total
Machine related
cost
P2,520,000
84,000
30
6,000
180,000
Materials receiving
order costs
Production
orders/Engineering
costs
Production
run/Setup costs
Inspection costs
1,255,800
768
1,635
600
981,000
1,080,000
135
8,000
57
456,000
112,200
102
1,100
66
72,600
576,000
96
6,000
60
360,000
Total Applied
Overhead
2,049,600
2.
P1
Direct Materials
Direct Labor Cost
Overhead Cost
Total Manufacturing Cost
1,680,000
1,008,000
1,831,680
4,519,680
P2
Direct Materials
810,000
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Direct Labor Cost
Overhead Cost
Total Manufacturing Cost
756,000
1,662,600
3,228,600
P3
Direct Materials
Direct Labor Cost
Overhead Cost
Total Manufacturing Cost
234,000
180,000
1,049,600
2,463,600
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