Oakenfeld Company manufactures a number of specialized machine parts. Part Bunkka 22 uses $35 of direct materials and $15 of direct labor per unit. Oakenfeld’s estimated manufacturing overhead is as follows:
|
Materials handling |
$100,000 |
|
Machining |
200,000 |
|
Factory supervision |
150,000 |
|
Total |
$450,000 |
Overhead is applied based on direct labor costs, which were estimated at $200,000.
Oakenfeld is considering adopting activity based costing.The cost drivers are estimated at:
|
Activity |
Cost driver |
Expected use |
|
Materials handling |
Weight of materials |
50,000 pounds |
|
Machining |
Machine hours |
20,000 hours |
|
Factory supervision |
Direct labor hours |
12,000 hours |
Instructions
(a) Compute the cost of 1,000 units of Bunkka 22 using the current traditional costing system.
(b) Compute the cost of 1,000 units of Bunkka 22 using the proposed activity based costing system.
Assume the 1,000 units use 2,500 pounds of materials, 500 machine hours, and 1,000 direct labor hours.