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    Abc Problem

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    Brian Torres
    A problem in ABC Costing

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    Abc Problem

    Uploaded by

    Brian Torres
    6 views2 pages
    A problem in ABC Costing

    Original Title

    ABC-PROBLEM

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    A problem in ABC Costing

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views2 pages

    Abc Problem

    Uploaded by

    Brian Torres
    A problem in ABC Costing

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Weng Office Equipment Corporation manufactures two types of filing cabinets-Deluxe and

    Executive and applies manufacturing overhead to all units at the rate of P80 per machine hour.
    Production information follows.

    Deluxe Executive

    Direct Material cost 40 65

    Direct Labor cost 25 25

    Budgeted Volume (units) 16,000 30,000

    The controller, who is studying the use of activity-based costing, has determined that the firm's
    overhead can be identified with three activities: manufacturing setups, machine processing, and
    product shipping. Data on the number of setups, machine hours, and outgoing shipments, which
    are the activities' three respective cost drivers, follow.

    Deluxe Executive Total

    Set-ups 100 60 160

    Machine Hours 32,000 45,000 77,000

    Outgoing shipments 200 150 350


    The firm's total overhead of P6,160,000 is subdivided as follows: manufacturing setups,
    P1,344,000; machine processing, P3,696,000; and product shipping, P1,120,000.

    REQUIRED:

    1. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using the
    company's current overhead costing procedures.
    2. Compute the unit manufacturing cost of Deluxe and Executive filing cabinets by using
    activity-based costing.
    3. Is the cost of the Deluxe fillng cabinet overstated or understated (i.e., distorted) by the use of
    machine hours to allocate total manufacturing overhead to production? By how much?

    Solution:
    1.
    Deluxe Executive

    Direct Materials cost 40 65

    Direct Labor cost 25 25


    FOH 160* 120*

    Total 225 210


    ● 77,000×80=6,160,000
    ● 6,160,000×32,000/77,000=2,560,000;6,160,000×45,000/77,000
    ● 2,560,000/16,000=160;3,600,000/30,000=120
    2.
    Deluxe Executive

    DM 40 65

    DL 25 25

    FOH 188.50* 104.80*

    Total 253.50 194.80


    *
    Deluxe Executive Total Total Cost Deluxe Executive
    (a) (b) (C) (d) d÷c×a d÷c×b

    Set-ups 100 60 160 1,344,000 840,000 504,000

    Machine 32,000 45,000 77,000 3,696,000 1,536,000 2,160,000


    Hours

    Outgoing 200 150 350 1,120,000 640,000 480,000


    shipments

    TOTAL 3,016,000 3,144,000

    Divided by 16,000 30,000

    Equals 188.50 104.80


    3. Deluxed is understated by 28.50* per unit.
    *253.50 minus 225.

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