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The ABC Assembling Department has the following production and manufacturing cost data for January. Materials are entered at the beginning of the process.

Production: Beginning inventory

1,000

units that are

100%

complete as to materials and

50%

complete as to conversion costs; units started during the period are

25,400

ending inventory of

3,000

units

20%

complete as to conversion costs.

Manufacturing costs: Beginning inventory costs, comprised of

$30,000

of materials and

$31,980

of conversion costs; materials costs added in Assembling during the month,

$25,500

labor

and overhead applied in Assembling during the month,

$55,850

and

$155,140

respectively.

Instructions:

(a) Compute the equivalent units of production for materials and conversion costs for the month.

Step 1:

Physical Units

Work in process, Beg. Invent.

Units started during the period

Total units

Units transferred out

23,400

WIP Ending inventory

3,000

Total units

26,400

Step 2

Equivalent Units

Materials 100%

Conversion 20% Costs

Units transferred out

23,400

23,400

Work in process

WIP ending Inventory * % complete

WIP ending Inventory * % complete

Total Units

(b) Compute the units costs for materials and conversion costs for the month.

Step 3

Unit Costs for Materials

Materials

Work in process, Beg. Invent.

Direct Materials

Costs added to production during the month

Total materials cost

Material cost per unit (Total material cost / units)

Unit Conversion Costs

Work in process, Beg. Invent.

Conversion Costs

Total Costs added to production during the month

Conversion Costs

Total conversion costs

Conversion cost per unit (Total conversion cost / units)

Total Material costs per unit and Conversion cost per unit _______________

(c) Determine the costs to be assigned to the units transferred out and in process.

Step 4 Costs accounted for

Transferred out # units * total unit cost

Work in process, Ending Inventory

Materials Costs

Conversion Costs

Total costs

Assign overhead using traditional costing and ABC

Laura Inc. manufactures two products: Hair Ties and Bracelet Ties. To determine the amount of overhead to assign to each product line, the controller, Corey, has developed the following information.

Hair Ties

Bracelet Ties

Estimated ties produced

30,000

15,000

Direct labor hours per tie

2

3

Total estimated overhead costs for the two product lines are

$550,000

Instructions:

(a) Compute the overhead cost assigned to the hair ties and bracelet ties, assuming that direct labor hours is used to allocate overhead costs.

DL Hours for Hair Ties

DL Hours for Bracelets Ties

Total DL hours

Total estimated overhead

Dollars per direct labor hour

Dollars per direct labor hour

Total direct labor hours

Overhead assigned

Hair Ties

Bracelet Ties

Total overhead

(b) Corey is not satisfied with the traditional method of allocating overhead because she believes that most of the overhead costs relate to the hair ties product line because of its complexity. She therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

Activity Cost Pool

Costs for Pools

Estimated Overhead

ABC Overhead Rate

Setting up machines

$110,000.00

500 setups

Assembling

$310,000.00

40,000 labor hours

Inspection

$130,000.00

700 inspections

Compute the activity-based overhead rates for these three cost pools put your answer in the 4th. Column above.

(c) Compute the cost that is assigned to the hair ties and bracelet ties product lines using an activity-based costing system, given the following information.

Setting up machines

$110,000.00

500 setups

Assembling

$310,000.00

40,000 labor hours

Inspection

$130,000.00

700 inspections

Hair Ties

Activity Cost Pool

Expected Use of Cost Drivers per Product

Activity Based Overhead Rates and the total cost assigned

Cost Assigned

Setting up machines

100

Assembling

25,000

Inspection

200

Total cost

Bracelet Ties

Activity Cost Pool

Expected Use of Cost Drivers per Product

Activity Based Overhead Rates and the total cost assigned

Cost Assigned

Setting up machines

400

Assembling

15,000

Inspection

500

Total cost assigned

(d) What do you believe Corey should do? (Enter your text answer in the block below.)

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