Fairbanks Corporation produces two types of cell phone electronic chargers: wall chargers and car chargers.<\/p>\n
The current traditional costing system allocates overhead costs using a plant-wide overhead rate based on direct labor hours. Since the two products are similar but require different parts and processes, the company controller believes that it might make sense to employ activity-based costing in order to get a better application of overhead expenses to the products produced.<\/p>\n
Production expectations for 2017 are 17,000 wall chargers and 15,200 car chargers. The wall chargers take .5 hours to produce. The car chargers take .75 hours to produce.<\/p>\n
The direct material and direct labor costs included in the two products are as follows:<\/p>\n
Wall chargers use $3.75 of direct material per unit and $9.50 per hour of direct labor. Car chargers use $4.15 of direct material per unit and $9.50 per hour of direct labor. Each charger sells for $23.00.<\/p>\n
Budgeted Total Factory Overhead for 2017:<\/p>\n
Activity<\/em><\/th>\nEst. OH Cost<\/em><\/th>\n | Est. Volume Levels<\/em><\/th>\n<\/tr>\n | Production setup<\/td>\n | $8,500<\/td>\n | 20 setups<\/td>\n<\/tr>\n | Materials handling<\/td>\n | $62,000<\/td>\n | 4,500 lbs.<\/td>\n<\/tr>\n | Packaging and shipping<\/td>\n | $120,000<\/td>\n | 6,400 boxes<\/td>\n<\/tr>\n | <\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | Total factory overhead<\/td>\n | $190,500<\/td>\n | <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n | Fairbanks\u00e2\u20ac\u2122 controller worked with the operations group to analyze the three overhead activities in order to effectuate activity-based costing. The estimates related to the two products\u00e2\u20ac\u2122 requirements were:<\/p>\n
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