Activity-Based Costing (ABC) Homework
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|
Variable cost |
Milk |
Premium |
|
and volume data |
chocolate |
cacao |
|
Raw materials |
0.50 |
0.75 |
|
Direct labor |
0.25 |
0.40 |
|
Selling and general |
0.05 |
0.05 |
|
Volume in units |
300,000 |
100,000 |
|
Sells price / unit |
2.65 |
4.99 |
|
Production hours/unit |
same |
same |
|
ABC |
Indirect |
Factory |
Depreciation: |
Repairs & |
Selling and |
General |
|
|
Cost |
manufacturing |
Insurance & |
Machinery |
maintenance |
distribution |
& admin. |
|
|
Pools |
labor |
Utilities |
& factory |
factory |
expenses |
expenses |
Totals |
|
Product Development |
25,000 |
|
|
|
|
|
25,000 |
|
Setup Candy Molding Equip |
12,000 |
|
18,500 |
|
|
30,500 |
|
|
Equipment Operations |
15,500 |
31,500 |
20,000 |
10,000 |
|
77,000 |
|
|
Shipment Preparation |
|
|
|
|
20,000 |
|
20,000 |
|
Distribution |
|
|
|
4,000 |
|
|
4,000 |
|
Administration |
|
|
|
|
20,000 |
60,000 |
80,000 |
|
Totals |
52,500 |
31,500 |
38,500 |
14,000 |
40,000 |
60,000 |
236,500 |
|
ABC cost |
Milk |
Premium |
|
allocation percentages |
chocolate |
cacao |
|
Product development |
20% |
80% |
|
Setup candy molding equipment |
60% |
40% |
|
Equipment operations |
75% |
25% |
|
Shipment preparation |
70% |
30% |
|
Distribution |
65% |
35% |
|
Administration |
50% |
50% |
|
1. Compute the total overhead, total cost, and per unit cost of each product, under the simple/traditional costing method and under the Activities-Based Costing (ABC) method. |
|
2. Compute and compare the net operating profit margin of each product using the simple/ traditional costing method and using the ABC method. Evaluate the difference. |
|
3. Categorize the production activities under activity-based costing according to the cost hierarchy and indicate the type of cost category that aligns with the activity. |
|
4. Write a brief explanation (approximately two paragraphs) that you might deliver to management to justify the use of ABC for these two products. |
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