(ABC) Madolfo Ltd. manufactures two products. Following is a production and cost analysis for each product for 2010:
|
Cost Component |
Product A |
Product B |
Both Products |
Cost |
|
Units produced |
10,000 |
10,000 |
20,000 |
|
|
Raw material used (units) |
|
|
|
|
|
X |
50,000 |
50,000 |
100,000 |
$800,000 |
|
Y |
|
100,000 |
100,000 |
$200,000 |
|
Labor hours used |
|
|
|
|
|
Department 1 |
|
|
|
$682,000 |
|
Direct labor |
20,000 |
5,000 |
25,000 |
$375,000 |
|
Indirect labor |
|
|
|
|
|
Inspection |
2,500 |
2,400 |
4,900 |
|
|
Machine operations |
5,000 |
10,000 |
15,000 |
|
|
Setups |
252 |
248 |
500 |
|
|
Department 2 |
|
|
|
$462,000 |
|
Direct labor |
5,000 |
5,000 |
10,000 |
$200,000 |
|
Indirect labor |
|
|
|
|
|
Inspection |
2,680 |
5,000 |
7,680 |
|
|
Machine operations |
1,000 |
3,860 |
4,860 |
|
|
Setups |
250 |
310 |
560 |
|
|
Machine hours used |
|
|
|
|
|
Department 1 |
5,000 |
10,000 |
15,000 |
$400,000 |
|
Department 2 |
5,000 |
20,000 |
25,000 |
$800,000 |
|
Power used (kW hours) |
|
|
|
$400,000 |
|
Department 1 |
|
|
1,500,000 |
|
|
Department 2 |
|
|
8,500,000 |
|
|
Other activity data |
|
|
|
|
|
Building occupancy |
|
|
|
$1,000,000 |
|
Purchasing |
|
|
|
$100,000 |
|
Number of purchase orders |
|
|
|
|
|
Material X |
|
|
200 |
|
|
Material Y |
|
|
300 |
|
|
Square feet occupied |
|
|
|
|
|
Purchasing |
|
|
10,000 |
|
|
Power |
|
|
40,000 |
|
|
Department 1 |
|
|
200,000 |
|
|
Department 2 |
|
|
250,000 |
|
Kevin Sharp, the firm’s cost accountant, has just returned from a seminar on activity based costing. To apply the concepts he has learned, he decides to analyze the costs incurred for Products A and B on an activity basis. In doing so, he specifies the following first and second allocation processes:
FIRST STAGE: ALLOCATIONS TO DEPARTMENTS
|
Cost Pool |
Cost Object |
Activity Allocation Base |
|
Power |
Departments |
Kilowatt hours |
|
Purchasing |
Material |
Number of purchase orders |
|
Building occupancy |
Departments |
Square feet occupied |
SECOND STAGE: ALLOCATIONS TO PRODUCTS
|
Cost Pool |
Cost Object |
Activity Allocation Base |
|
Departments Indirect labor |
Products |
Hours worked |
|
Power |
Products |
Machine hours |
|
Machinery related |
Products |
Machine hours |
|
Building occupancy |
Products |
Machine hours |
|
Material purchasing |
Products |
Materials used |
a. Determine the total overhead for Madolfo Ltd.
b. Determine the plantwide overhead rate for the company, assuming the use of direct labor hours.
c. Determine the cost per unit of Product A and Product B, using the overhead rate found in (b).
d. Determine the cost allocations to departments (first-stage allocations). Allocate costs from the departments in the following order: building occupancy, purchasing, and power. Finish the cost allocations for one department to get an “adjusted” cost to allocate to the next department.
e. Using the allocations found in (d), determine the cost allocations to products(second-stage allocations).
f. Determine the cost per unit of Product A and Product B using the overhead allocations found in (e).