(WIP) ACC 350 Exam 1 Study Material
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Problem #3 – Activity Based Costing Problem<br />
Anderson Company uses a conventional cost system with overhead allocated to products on the<br />
basis of direct labor hours. The company manufactures two products, for which the following<br />
estimated information for next year is available.<br />
Standard Unique<br />
Selling Price $125 $195<br />
Number of Units Produced 15,000 5,000<br />
Prime Cost per Unit $85 $125<br />
DLH per unit 2 1<br />
# of units produced each MH 7.5 2.5<br />
Units per batch 30 10<br />
Hours to setup a batch 4 6<br />
Number of moves per batch 2 3<br />
Engineering Support Hours 1,000 2,000<br />
Total overhead for the current year was estimated to be $402,500 from the following activities:<br />
Activity<br />
Cost<br />
<strong>Material</strong> Handling $ 30,000<br />
Machine Set-ups $100,000<br />
Engineering Support $150,000<br />
Power for Machines $ 80,000<br />
Providing Space $ 42,500<br />
Total $402,500<br />
If the company adopts an ABC system, they will allocate facility-level costs equally to each<br />
product line.<br />
Requirements:<br />
1. Estimate the cost per unit of the two products using the current cost system.<br />
OH costs / DLH = $402,500/35,000 DLH = $11.50/DLH<br />
Standard Unique<br />
Prime costs (DM & DL) $85.00 $125.00<br />
OH (2 * $11.50; 1 * $11.50) 23.00 11.50<br />
Total $108.00 $136.50
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