abc costing

Exercises (Group A)
(15-20 min.) E 4-22A
Req. 1
Plantwide
overhead rate

=

Estimated total manufacturing costs
Estimated cost allocation base

=
=

$1,150,000
25,000* direct labor hours

=
=

$46 per direct labor hour

*When calculating plantwide overhead rates, all direct labor hours incurred in the plant are used.

(continued) E 4-22A
Req. 2
Departmental overhead rate

Machining Dept. overhead rate

=
=

Finishing Dept. overhead rate Total department overhead
Cost allocation base (estimated)

=

$825,000
13,750 machine hours
$60 per machine hour

$325,000
13,000** direct labor hours

=
=

$25 per direct labor hour

**When calculating the finishing departmental rate, only the direct labor hours incurred in the finishing department are used.
Req. 3
Overhead allocation based on single, plantwide rate:
Cost allocation base (actual)
× Plantwide cost allocation rate Overhead allocation

Job 450
5 DL hours

Job 455
5 DL hours

× $46/ DL hour
$ 230

× $46 / DL hour
$ 230

Req. 4
Overhead allocation based on departmental rates:
Job 450
Machining Department:
Departmental allocation rate
× Machine hours used by Job
Overhead allocation

×

$60/ MH
3 MH
$180

Job 455

×

$60/ MH
6 MH
$360

1

Finishing Department:
Departmental allocation rate
× DL hours used by Job
Overhead allocation
Total overhead allocation (from both departments

$25/ DL hr
4 DL hrs
$100

$25/ DL hr
× 3 DL hrs
$75

$ 280

×

$ 435

Req. 5
The single plantwide rate undercosts Job 450 and undercosts Job 455. Since Donovan sets the sales price at 125% of cost, and the job cost is affected by the allocation system used, the sales price will be affected by the allocation system used.

(15-20 min.) E 4-23A
Req. 1
West Horizon
Computation of Cost Allocation Rates

Activity
Materials handling
Machine setup
Insertion
Finishing

Total Activity
Overhead (est.)
$13,200
$ 5,200