ACC 4A&B: COST ACCOUNTING

HAND-OUT 4: ACTIVITY-BASED COSTING AND SUPPORT COST ALLOCATION

Problem A:
Management at C2 Mfg. Inc. decided to allocate the two support departments (Administration and Maintenance)
to two producing departments (Assembly and Finishing). Administration costs are allocated on the basis of peso
amounts of assets employed and maintenance costs are allocated based on square foot of floor space. Budgeted
costs information of the departments are as follows:

Costs: Administration Maintenance Assembly Finishing

Direct labor P 1,400,000 P 1,800,000 P 5,600,000 P 4,000,000
Direct material 140,000 180,000 800,000 2,400,000
Insurance 350,000 150,000 600,000 440,000
Depreciation 180,000 160,000 400,000 300,000
Miscellaneous 60,000 80,000 120,000 60,000
P 2,130,000 P 2,370,000 P 7,520,000 P 7,500,000

Allocation Bases: Administration Maintenance Assembly Finishing

Assets employed P 5,000,000 P 10,000,000 P 50,000,000 P 30,000,000
Sq foot of floor space occupied 800 400 2,000 1,600

Requirements:
1. Assume the benefits-provided ranking is the order in which the departments are listed, allocate the support
costs of Administration and Maintenance to Assembly and Finishing using step method.
2. After allocating the support costs using step method, calculate the factory overhead rates using 100,000
machine hours in processing and 200,000 direct labor hours in finishing.
3. How much is the total costs of assembly and finishing after support cost allocation in no. 1.
4. Allocate the support costs to Assembly and Finishing using algebraic method.
5. After allocating the support costs using reciprocal method, calculate the factory overhead rates using the
allocation bases in no. 2.
6. How much are the total costs of assembly and finishing after support cost allocation in no. 4
7. Using the most widely accepted method, how much is the total cost of Assemby and Finishing after support
cost allocation?
Problem B:
Albania Mfg. Inc. manufactures 3 types of products: Allure, Oxyglow and Beauxiwhite. The Company is currently
using activity-based costing. Below are the identified major activities, related cost drivers and corresponding
allocated overhead cost per each activity:

Activity Cost Cost Driver

Material handling P 2,250,000 number of parts
Material insertion 2,475,000 number of parts
Machining 8,400,000 number of machine hours
Finishing 1,700,000 number of direct labor hours
Packaging 1,700,000 number of orders shipped

The following information pertains to the three product lines for the following year:
Allure Oxyglow Beauxiwhite
Units to be produced 100,000 50,000 20,000
Orders to be shipped 1,000 500 200
Number of parts per unit 10 15 25
Machine hours per unit 1 3 5
Labor hours per unit 2 2 2

Requirement:
8. Using the multiple cost drivers, what is the overhead per unit cost of Allure, Oxyglow and Beauxiwhite

Problem C:
Birmingham Mfg. Corp has the following information related to its production and the relevant budgeted overhead
costs during 2015:

Lumineux Dermaforte
Direct material per unit P 46.00 P 251.60
Direct labor cost per unit 10.40 85.15
Annual production (units) 180,000 20,000

Activity centers: Actual use of cost drivers Allocated OH costs

Processing 275,000 direct labor hours P 1,375,000
Machine set-up 360 set-ups 1,080,000
Material handling 1,562,500 kilos 625,000
Total P 3,080,000

Direct labor costs P 13 per hour.

Requirement:
9. What is the total unit cost of product Lumineux if it has used 100 set-ups and 600,000 kilos for the production
of the entire 180,000 units