Determine the total overhead cost allocated to each product

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Reference no: EM132780873

The Longley Corporation Ltd is considering whether to introduce activity based costing to determine the cost of each of its four products. The company is currently using a conventional costing system whereby the total overhead costs ($1,650,000) are allocated on the basis of the number of direct labour hours. The table below provides information in relation to the cost of each of the products and the extent to which each of the products consume various resources.

PRODUCTS A B C D TOTAL

Output (units) 16000 4000 7000 12000 39000

RESOURCE USE PER UNIT

Raw Materials 3 4 5 10 219000

Labour Hours 2 1 1.5 3 82500

Machine Hours 1 2.5 2 2 64000

UNIT PRODUCTION COSTS

Raw Materials $12 $16 $20 $40 $876000

Direct Labour $28 $14 $21 $42 $1155000

OVERHEAD ACTIVITIES

Machining (per hour) $10 $10 $10 $10 $640000

Engineering Set-ups 3 6 7 4 $60000

Component Receipts 40 55 65 40 $360000

Orders Packaged 13 17 11 9 $280000

Distribution Deliveries 15 35 35 15 $310000

Required:

Problem (a) Calculate the cost of each of the four products if the conventional costing approach is used.

Problem (b) Determine the TOTAL OVERHEAD COST ALLOCATED TO EACH PRODUCT IN RESPECT TO EACH OVERHEAD ACTIVITY if activity based costing were to be used.

Problem c) Determine the TOTAL COST PER UNIT of producing each product if activity based costing were to be used.

Reference no: EM132780873

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