Exercise 17-5 Assigning costs using ABC LO P3 Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic. Activity Expected Costs Expected Activity Handling materials $ 625,000 100,000 parts Inspecting product 900,000 1,500 batches Processing purchase orders 105,000 700 orders Paying suppliers 175,000 500 invoices Insuring the factory 300,000 40,000 square feet Designing packaging 75,000 2 models Assume that the following information is available for the company’s two products for the first quarter of this year. Deluxe Model Basic Model Production volume 10,000 units 30,000 units Parts required 20,000 parts 30,000 parts Batches made 250 batches 100 batches Purchase orders 50 orders 20 orders Invoices 50 invoices 10 invoices Space occupied 10,000 sq. ft. 7,000 sq. ft Models 1 model 1 model Required: Compute activity rates for each activity and assign overhead costs to each product model using activity-based costing (ABC). What is the overhead cost per unit of each model? (Round activity rate and average OH cost per unit answers to 2 decimal places.)

Instructions are below.

Explanation:

First, we need to calculate the activity rate for each activity:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Handling materials= 625,000/100,000= $6.25 per part

Inspecting product= 900,000/1,500= $600 per batch

Processing= 105,000/700= $150 per order

Paying suppliers= 175,000/500=$350 per invoice

Insuring the factory= 300,000/40,000= $7.5 per square feet

Designing packaging= 75,000/2= $37,500 per model

Now, we can allocate overhead to each model:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Deluxe:

Handling materials= 6.25*20,000= 125,000

Inspecting product= 600*250= 150,000

Processing= 150*50= 7,500

Paying suppliers= 350*50= 17,500

Insuring the factory= 7.5*10,000= 75,000

Designing packaging= 37,500*1= 37,500

Total allocated overhead= $412,500

Basic:

Handling materials= 6.25*30,000= 187,500

Inspecting product= 600*100= 160,000

Processing= 150*20= 3,000

Paying suppliers= 350*10= 3,500

Insuring the factory= 7.5*7,000= 52,500

Designing packaging= 37,500*1= 37,500

Total allocated overhead= $444,000

Finally, the unitary overhead:

Deluxe= 412,500/10,000= $41.25

Basic= 444,000/30,000= $14.8

$2.00 for three shots.