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Accounting

In: Business and Management

Submitted By chenjiangnan123
Words 1235
Pages 5
Eunice Eng Yoke Fang PBS1311031
Case Study (Galvaset)
Company Background:
Information Provided:
Direct Labour Rate = $ 20 per hour
Expected Production Level = 50 000 units
Labor Hours Required = 200 000 hours Activity (Cost Driver) | Budgeted Costs for 2010 | Cost Driver Used as Allocation Based | Cost Allocation Rate | Material Handling | $ 325 000 | Number of parts used | $ 0.25 per part | Cutting & Lathe Work | $ 2 340 000 | Number of parts used | $ 1.80 per part | Assembly & Inspection | $ 5 000 000 | Direct labor hours | $ 25.00 per hour |

Units Produced | Direct Materials Costs | Number of Parts Used | Direct Labor Hours | 3 800 | $ 142 000 | 83 600 | 17 180 |

Question a:
ABC Costing Activity | Total Time | Cost-Driver Rate | Total Cost | Material Handling | 83 600 | $ 0.25 | $ 20 900 | Cutting & Lathe Work | 83 600 | $ 1.80 | $ 150 480 | Assembly & Inspection | 17 180 | $ 25.00 | $ 429 500 | Total | | | $ 600 880 |

Direct Labor Cost = $ 20 x 17 180 hours = $ 343 600
Direct Material Cost = $ 142 000
Total Manufacturing Cost = $ 600 880 + $ 343 600 + $ 142 000 = $ 1 086 480
Cost per unit = $ 1 086 480 3800 units = $ 285.92 per unit

Question b:
Traditional Costing
Predetermined Overhead Application Rate:
Predetermined Overhead (Labor per unit) = $ 325 000 + $ 2 340 000 + $ 5 000 000 200 000 hours = $ 38.325 per hour
Total Overhead Cost = 17 180 hours x $ 38.325 = $ 658 423.50
Total Direct Cost = $ 20 x 17 180 hours = $ 343 600
Total Direct Materials Cost = $ 142 000
Total Manufacturing Cost = $ 658 423.50 + $ 343 600 + $ 142 000 = $ 1 144 023.50
Cost per unit = $ 1 144 023.50 3800 units = $ 301.06 per unit

Question c:
Absorption costing is the traditional cost...

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