ABC uses activity based costing where overhead from three di

ABC uses activity based costing where overhead from three different production departments are allocated to products as follows:

Activity - Driver - Activity Rate - Product A - Product B

Cutting - Machine Hours - $2.00 per machine hour - 2,000 hours - 3,000 hours

Assembly - Assembly Hours - $.50 per assembly hour - 3,000 hours - 5,000 hours

Painting - Gallons of Paint - $5.00 per gallon - 1,500 gallons - 1,300 gallons

Raw materials are directly followed to each product and the amount of raw materials used for Product A was $15,000 and for Product B was $12,000. Direct labor is directly followed to each product and the amount of direct labor used for product A was $5,000 and for product B was $7,000. There were 1,000 units of product A manufactured and 2,000 units of product B manufactured.

Calculate the total unit cost of making product A and product B using ABC. Show computations.

Solution

CALCULATION OF UNIT COSTING AS PER ABC Particulars Product A Product B (1000 Units) (2000 Units) Raw Material $15,000 $12,000 Direct Labour $5,000 $7,000 Prime Cost (A) $20,000 $19,000 Overhead Cost Cutting Expenses (B) $4,000 $6,000 (2000 Hrs X $ 2.00 Per Hrs) (2000 Hrs X $ 3.00 Per Hrs) Assempbly Expenses($ 5 Per Hrs) (,C) $1,500 $2,500 (3000 Hrs X $ 0.5 Per Hrs) (5000 Hrs X $ 0.5 Per Hrs) Painting Expenses (D) $7,500 $6,500 (1500 Gallon X $ 5 Per Gallon) (1300 Gallon X $ 5 Per Gallon) Total Unit Cost (A+B+C+D) $33,000 $34,000 Total Unit 1000 Units 2000 Units Per Unit Cost $33 $17