Caine Cellular Company produces a line of cellular telephone

Caine Cellular Company produces a line of cellular telephones. A company has placed an order for 800 cellular phones, and the order has just been completed. Caine has just recently changed to an activity based costing system. The controller is interested in doing a comparison of the new costing system with the old traditional costing system. The order had the following direct costs of productiorn CAINE CELLULAR COMPANY DIRECT COSTS OF PRODUCTION FOR 800 PHONE ORDER Direct materials Direct labor hours Average pay rate per direct labor hour 60,000 250 15.00 Under traditional costing, the company applied manufacturing overhead at a rate of 270% of direct labor cost. Under activity based costing, the company has determined the following information.

Solution

Solution:

Part 1 --- Total Cost and the cost per unit for the order

Under traditional costing, the cost of product includes direct material cost, direct labor cost and applied manufacturing overhead based on predetermined basis.

Calculation of Total Cost and Cost per unit

$$

Direct Materials

$60,000

Direct Labor Costs (Hours 250*Rate $15)

$3,750

Applied Manufacturing Overhead (Direct Labor Costs $3,750*270%)

$10,125

Total Costs (A)

$73,875

Number of Production Order (B)

800

Cost per Unit (A/B)

$92.34

Part 2 –

Under activity based costing, the manufacturing costs are calculated based on the activity consumed by the product or process.

First of all we will calculate the Manufacturing Overhead Costs assigned to the 800 orders

Activity

Unit of Cost driver for Order (A)

Activity Cost Rate (B)

Assigned Overhead Costs (A*B)

Electrical engineering design

32

Eng. Hours

$19

$608

Setup

11

Setups

$29

$319

Parts Production

134

Machine Hours

$26

$3,484

Product testing

52

Tests

$32

$1,664

Packaging

22

Packages

$17

$374

Total Assigned Overhead Costs

$6,449

Calculation of Total Cost and Cost per unit

$$

Direct Materials

$60,000

Direct Labor Costs (Hours 250*Rate $15)

$3,750

Applied Manufacturing Overhead (Refer working above)

$6,449

Total Costs (A)

$70,199

Number of Production Order (B)

800

Cost per Unit (A/B)

$87.75

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

	$$
Direct Materials	$60,000
Direct Labor Costs (Hours 250*Rate $15)	$3,750
Applied Manufacturing Overhead (Direct Labor Costs $3,750*270%)	$10,125
Total Costs (A)	$73,875
Number of Production Order (B)	800
Cost per Unit (A/B)	$92.34