Words0 QUESTION 14 Sur Tippins manufacturers two products ha

Words.0 QUESTION 14 Sur Tippins manufacturers two products, hand mixers and deluxox table mixers. The manufacturing management has beon advised that Activity Based Costing is a better way to allocating manufacturing cost when determining the total cost per unit of both of i\'s products. Cost analyais gathered the following information, as you instructed: Cost Drivers by Product ABC Cost Pools Cost Drivers Est. Overhead Cost Hand-HeldDeluo Ordering/receiving Order Machine Setup Set Ups Machining Parts Assembly $ 120,000 297,000 Machine Hours 1,000,000 1,400,000 400 400 100,000 ,200,000 800,000 600 500 150,000 Inspections 450 550 Production (units) 700,000 200,000 Now that the information has been gathered, you are asked to identity the steps taken in the ABC process to allocate the manufacturing overhead for the products. REQUIRED 1. Identify and illustrate the ABC steps in manufacturing cost allocation using the data provided in the table above. Show ALL required 2. Sur Tippins has been using a traditional approach to allocating manufacturing overhead. The single driver was machine hours. it was revealed that the handheld uses 2 machine hours per unit and the Deluxx BE SPECFIC and show What is your evaluation of the results in #1 in comparison to the traditional approach. uses 4 machine hours per unit. computations. Click Save and Submit to save and submit. Click Save All Answers to save all ansiwers. Save All Answers

Solution

Answer 1 The activity based costing method involves following steps, 1.Identification of activities involved in the production process. 2.Classification of each activity into unit-level, batch-level, product level and facility level 3.Identification and accumulation of total costs of each activity 4.Identification of the most appropriate cost driver for each activity 5.Calculation of total units of the cost driver relevant to each activity 6.Calculation of the activity rate 7.Application of the cost of each activity to products based on its activity usage by the product Calculation of activity rates Cost pool Rate Ordering / receiving ($120000 / 1000 orders) $120.00 per order Machine setup ($297000/900 setups) $330.00 per setup Machining ($1000000/250000 machine hours) $4.00 per machine hour Assembly ($1400000/2000000 parts) $0.70 per part Inspection ($300000 / 1000 isnpections) $300.00 per inspection Allocation of manufacturing overhead cost Hand held Deluxx Ordering / receiving $72,000.00 $48,000.00 Machine setup $165,000.00 $132,000.00 Machining $600,000.00 $400,000.00 Assembly $840,000.00 $560,000.00 Inspection $165,000.00 $135,000.00 Overhead assigned $1,842,000.00 $1,275,000.00 Answer 2 - Traditional method of allocating overheads Overhead allocation rate based on machine hours = Estimated Overhead cost / Total estimated machine hours Hand held Deluxx Total Production (Units) 700000 200000 x Machine hours per unit 2 4 Machine hours required 1400000 800000 2200000 Overhead allocation rate based on machine hours = $31,17,000 / 22,00,000 machine hours = $1.42 per machine hour Allocation of manufacturing overhead cost Hand held (1400000 hours * $1.42) $1,983,545 Deluxx (800000 hours * $1.42) $1,133,455 Total Overhead Cost $3,117,000 The overhead allocation based on traditional approach is higher for Hand held product and lower for Deluxx product in comparison to Activity based cost allocation to the said products.