KIMBALL COMPANY

If Kimball uses direct labor hours to allocate overhead to each model,

what would overhead per unit be for Model 1?

FOH Rate = Factory overhead costs➗Direct Labor hours

= 480000➗2000 Note: 2000 Direct labor hours is the total DLH for Model 1 & Model 2
= P240 per direct labor hour Model 1: 1000 units*1 DLH per unit
Model 2: 200 units*5 DLH per unit
Total allocated FOH = Direct labor hours * FOH rate
= 1000 DLH * P240
= P240,000

Overhead per unit = Total FOH ➗ units produced

= P240,000 ➗ 1000 units
= P240 per unit

If Kimball uses activity-based costing to allocate overhead to each

model, what would overhead per unit be for Model 1?

Activity Cost Cost driver ABC rate Formula: Cost Base = ABC Rate
materials 120,000.00 160 750.00 ➗ *Cost that is traceable to the activity
testing 150,000.00 375 400.00 *Base is the cost driver
labor 210,000.00 2000 105.00
480,000.00

Allocated FOH
Activity Activity Level ABC rate Overhead Cost
materials 120 750.00 90,000.00
testing 250 400.00 100,000.00
labor 1000 105.00 105,000.00
total OH 295,000.00

Overhead per unit = Total FOH ➗ units produced

= P295,000 ➗ 1000 units
= P295 per unit
If Kimball uses direct labor hours to allocate overhead to each model,
what would overhead per unit be for Model 2?

FOH Rate = Factory overhead costs➗Direct Labor hours

= 480000➗2000 Note: 2000 Direct labor hours is the total DLH for Mode 1 & Mode 2
= P240 per direct labor hour Model 1: 1000 units*1 DLH per unit
Model 2: 200 units*5 DLH per unit

Total allocated FOH = Direct labor hours * FOH rate

= 1000 DLH * P240
= P240,000

Overhead per unit = Total FOH ➗ units produced

= P240,000 ➗ 200 units
= P1,200 per unit

If Kimball uses activity-based costing to allocate overhead to each

model, what would overhead per unit be for Model 2?

Activity Cost Cost driver ABC rate Formula: Cost Base = ABC Rate
materials 120,000.00 160 750.00 ➗ *Cost that is traceable to the activity
testing 150,000.00 375 400.00 *Base is the cost driver
labor 210,000.00 2000 105.00
480,000.00

Allocated FOH
Activity Activity Level ABC rate Overhead Cost
materials 40 750.00 30,000.00
testing 125 400.00 50,000.00
labor 1000 105.00 105,000.00
total OH 185,000.00

Overhead per unit = Total FOH ➗ units produced

= P185,000 ➗ 200 units
= P925 per unit
I. Determine the ABC Rate:
ACTIVITY COSTS COST DRIVER ABC RATE
Setups 45,000.00 500 90.00 per set
Shipping 70,000.00 700 100.00 per shipping
Engineering 90,000.00 30 3,000.00 per change
Formula: Cost Base = ABC Rate
*Cost that is traceable to the activity
➗ *Base is the cost driver

1) Model S:
Activity base/cost driver ABC Rate Overhead cost
Setups 100 90 9,000.00
Shipping 200 100 20,000.00
engineering 15 3000 45,000.00
TOTAL 74,000.00
divided by: 2,000 units
per unit cost 37.00

2)Model M:
Activity base/cost driver ABC Rate Overhead cost
Setups 150 90 13,500.00
Shipping 225 100 22,500.00
engineering 10 3000 30,000.00
TOTAL 66,000.00
divided by: 6,000 units
per unit cost 11.00

3) Model L:
Activity base/cost driver ABC Rate Overhead cost
Setups 250 90 22,500.00
Shipping 275 100 27,500.00
engineering 5 3000 15,000.00
TOTAL 65,000.00
divided by: 12,000 units
per unit cost 5.42
 Kimmy Corporation:

Using Traditional Costing Method

Factory overhead
FOH Rate = costs➗Direct Labor costs
781.25%

1) Product X:
Factory OH 93,750.00 @DLC
direct mat. 20,000.00
direct labor 12,000.00
Total product
costs 125,750.00
divided by: 4,000 units
per unit 31.4375

2) Product Y:
Factory OH 156,250.00 @DLC
direct mat. 25,000.00
direct labor 20,000.00
Total product
costs 201,250.00
divided by: 20,000 units
per unit 10.0625

Using ABC Method

ACTIVITY COSTS COST ABC RATE
DRIVER
Machine setup 180,000.00 1500 120.00
mat. Handling 50,000.00 12500 4.00
elec. Power 20,000.00 20000 1.00

3) Product X:
Activity base/cost driver ABC Rate Overhead cost
Machine setup 100 120 12,000.00
mat. Handling 500 4 2,000.00
elec. Power 1000 1 1,000.00
Total 15,000.00
Factory OH 15,000.00
direct mat. 20,000.00
direct labor 12,000.00
Total product
costs 47,000.00
divided by: 4,000 units
per unit 11.75

4) Product Y:
Activity base/cost driver ABC Rate Overhead cost
Machine setup 120 120 14,400.00
mat. Handling 1500 4 6,000.00
elec. Power 2000 1 2,000.00
Total 22,400.00

Factory OH 22,400.00
direct mat. 25,000.00
direct labor 20,000.00
Total product
costs 67,400.00
divided by: 20,000 units
per unit 3.37