Problem: A company manufacturers two products, K33 and K88. Estimated unit cost and production data as well as activity cost pools and cost drivers are in the attached file.
How do I estimate the manufacturing cost per unit of each product if support costs are assigned to products using activity based cost driver rates based on practical capacity?
| ITEM |
K33 |
K88 |
|
|
|
|
| Direct materials cost |
$30 |
$45 |
|
|
|
|
| Direct labor cost ($12 per hour) |
$24 |
$60 |
|
|
|
|
| Estimated production in units |
400,000 |
150,000 |
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|
COST DRIVER UNITS DEMANDED |
| ACTIVITY |
COSTS |
ACTIVITY COST DRIVER |
PRACTICAL CAPACITY |
K33 |
K88 |
|
| Machine setups |
$425,000 |
Setup hours |
6,500 |
2,000 |
4,200 |
|
| Purchase ordering |
10,000 |
Number of orders |
100 |
25 |
50 |
|
| Machining |
6,000,000 |
Number of machine hours |
75,000 |
40,000 |
15,000 |
|
| Inspection |
36,000 |
Number of batches |
1,200 |
400 |
600 |
|
| Packing and shipping |
64,000 |
Number of shipments |
1,600 |
80 |
1,500 |
|
| Total |
$6,535,000 |
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