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Question
Lotus Ltd has identified the following overhead costs and cost drivers for next year
Overhead Items E (cost) $
Power 15000
Maintenance cost 7800
Ordering cost 6150
Set ups cost 4500
Cost Driver E (activity)
Number of setups 400
Number of orders 4,000
Machine Hours 5,000
Kilowatt hours 52000
The following is one of the jobs completed during the year
Product A Product B
Direct materials $1200 $1300
Hourly rate 25 30
Units completed 125 150
DLH 140 70
Number of setups 4 6
Number of orders 20 9
Machine hours 250 100
Kilowatt hours 75 48
Actual overhead $1500 $950
The company's practical activity is 9800 machine hours
REQUIRED
Part 1
1. Calculate the predetermined rate for the plant using FBC based on machine hours for each job
2. Calculate total product cost using FBC based on Machine hours for each job
3. Calculate the unit cost for each Product
4. Is the overhead over-applied or under-applied?
Part 2
5. Calculate the predetermined rate for the plant using ABC based on machine hours for each job
6. Calculate product cost under ABC.
7. Calculate the unit cost for each Product [ABC]
8. Is the overhead over-applied or under-applied under ABC?
9. Compare the result of FBC and ABC.
Answer & Explanation
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