University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

425

Pages:

2
Author:

stud_ice13

This assignment involves calculating overhead cost per unit using three costing methods—plantwide, departmental, and activity-based costing (ABC). The steps provided in the document include calculating overhead rates, allocating costs, and determining profitability. Here’s an overview of how to proceed with each part: Part 1: Plantwide Overhead Rate 1. Calculate the Plantwide Overhead Rate: o Use total budgeted overhead costs and total machine hours for the entire plant. o Formula: Plantwide Overhead Rate=Total Budgeted Overhead Cost 2. Allocate Overhead Cost to Each Scooter Type: o Apply the plantwide rate to each product’s actual machine hours to allocate overhead cost. Part 2: Departmental Overhead Rates 1. Calculate Departmental Overhead Rates: o Separate overhead into Assembly and Finishing departments. o Calculate each department’s rate based on its specific cost and budgeted activity:  Assembly Department: Use machine hours.  Finishing Department: Use direct labor hours. 2. Allocate Overhead Cost Using Departmental Rates: o Multiply each department’s rate by the actual activity level (machine hours or direct labor hours) for each product type. Part 3: Activity-Based Costing (ABC) 1. Identify Activities and Overhead Costs: o Break down overhead into activities (e.g., setup, inspection) and assign costs to each activity based on their cost drivers. 2. Compute Activity Rates: o For each activity, divide the budgeted cost by the budgeted driver amount to get the rate: Activity Rate=Budgeted Cost for ActivityBudgeted Activity Driver 3. Allocate Overhead Cost Using Activity Rates: o Multiply the activity rate by the actual activity driver units for each product to assign overhead based on each product’s specific use of resources. Part 4: Summary Table • Prepare a summary comparing the overhead cost per unit for each scooter model under the three methods (Plantwide, Departmental, and ABC). Part 5: Product Cost and Gross Profit 1. Calculate Product Cost per Unit (only for ABC): o Add direct materials, direct labor, and allocated overhead costs (from ABC). 2. Calculate Gross Profit per Unit: o Subtract the product cost per unit from the selling price. This method allows for a comparison of cost allocation accuracy across the three approaches, highlighting how ABC can better capture the true costs of lowervolume, customized products that may use more resources. Let me know if you'd like a breakdown of each calculation with examples or have specific data for each method!