Iet_Theory_of_Explanation

IET 105 HW7 Solution Activity-Based Costing: Determine the product cost per unit for each product using (1) Conventional method and (2) Activity-Based Costing method. Resources|A|B| Production, units|2,000|1,000| Direct labor cost|$60,000|$60,000| Direct materials cost|$20,000|$40,000| Overheads: Indirect labor|$45,500| Indirect material|$23,000| Utilities|$24,000| Rent|$15,500| Other Overheads|$10,000| Total Overheads|$118,000| Overheads of:|Driver (or based on):| Indirect labor|65% to A and 35% to B| Indirect material|80% to A and 20% to B| Utilities|KW:A used 160,000 KWB used 70,000 KW| Rent|floor space:A uses 5,000 square feetB uses 4,000 square feet| Other|difficult to classify to A or B(use conventional approach – based on direct labor cost)| 1. Conventional method From|Product A Cost per unit|Product B Cost per unit| Direct labor cost|$30.00|$60.00| Direct materials cost|$10.00|$40.00| Total overheads|0.5*118,00/2000=$29.50|0.5*118,000/1000 =$59.00| Total Cost|$69.50|$159.00| 2. Activity-Based Costing method Overheads of:|Driver (or based on):|In proportion of:| Indirect labor|65% to A and 35% to B|0.65 to A| ||0.35 to B| Indirect material|80% to A and 20% to B|0.80 to A| ||0.20 to B| Utilities|KWA used 160,000 KWB used 70,000 KW|0.696 to A| ||0.304 to B| Rent|floor spaceA uses 5,000 sq/ftB uses 4,000 sq/ft|0.556 to A| ||0.444 to B| Other|Based on direct labor cost|0.500 to A| ||0.500 to B| ||| From|Product A Cost per unit|Product B Cost per unit| Direct labor cost|$30.00|$60.00| Direct materials cost|$10.00|$40.00| Indirect labor |$14.79|$15.93| Indirect materials|$9.20|$4.60| Utilities|$8.35|$7.30| Rent|$4.31|$6.88| Other overheads|$2.50|$5.00| Total cost|$79.15|$139.71|