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Chapter 5 Activity Based Costing and Management
The controller for Mumbai Fertilizers Limited has established the following activity cost pools and cost drivcrs.
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Activity Cost Pool Machine setups Material handling Hazardous waste control Quality control Other overhead costs …….
Total
Budgeted Overhead Cost $250,000 75,000
25,000 75,000 200,000
$625,000
Cost Driver Number of setups Weight of raw material Weight of hazardous chemicals used Number of inspections Machine hours
An order for 1,000 bags of Nitrogen Plus fertilizer has
Machine setups 5 setups Raw material 5,000 kg. Hazardous materials 1,000 kg. Inspections 10 inspections Machine hours 500 machine hours
Required: 1. Compute the total overhead that should be ill15: I 0 2. What is the overhead cost per bag of fertilizer • 3. Suppose Mumbai Fertilizers Limited were to use a siarat+ckicz,… machine hours. Compute the rate per hour. Under the approach in requirement (3). how much overhead emirs fertilizer order! a. In total. h Per bag of fertilizer. Explain why these two prod cupcosting systems result in such wide 6. Build a spreadtheet: Construct an Excel spreadsheet to solve requirelnents ( )ft ( 3), and tern do you recommend’? Why’?
Budgeted Level for Cost Driver 125 18.750 kg
1. 4s I I t+ 1
2,500 kg. 11000 20,000
t, In
Pool Rate $2,000 per setup $4 per kg
$10 per kg. $75 per inspection $10 per machine hour
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, sJuiretnents.
Pr Activit Driver (10 1
3. Pr( rate:
tOci% Pius
differing costs. Which
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. a se ritrinve if the folloking data change. The oethead ….,, ha I el apt et
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