Name:

Solution 1:

Conventional costing

Total machine hour 440

W X Y Z Total
$ $ $ $ $
Direct material 200 800 2,000 8,000 11,000
Direct labor 50 150 500 1,500 2,200
Overhead 700 2,100 7,000 21,000 30,800
Total 950 3,050 9,500 30,500 44,000
Units produced 10 10 100 100
Cost per unit 95 305 95 305

Using activity based costing (ABC)

W X Y Z Total
$ $ $ $ $
Direct material 200 800 2,000 8,000 11,000
Direct labor 50 150 500 1,500 2,200
Short-run variable
overheads 70 210 700 2,100 3,080
Set-up costs 1,560 1,560 3,900 3,900 10,920
Expediting and scheduling
costs 1,300 1,300 3,250 3,250 9,100
Material handling costs 1,100 1,100 2,750 2,750 7,700
4,280 5,120 13,100 21,500 44,000
Units produced 10 10 100 100
Cost per unit 428 512 131 215
Solution 2:

(a) Traditional costing approach

Direct labour hour

(hours)
Product L 5,000
Product M 14,000
19,000

Overhead absorption rate = $285,000 / 19,000 = $15 per

hour

Overhead absorbed:
Product L (1 hour * $15) 15 per unit
Product M (2 hours * $15) 30 per unit

(b) ABC approach

Machine hours
Product L 15,000
Product M 7,000
22,000

Overhead costs are absorbed:

Machine hour driven costs $220,000 / 22,000 machine hours = $10 per machine hour
Set-up driven costs $20,000 / (10+40) = $400 per set-up
Orders driven costs $45,000 / (15+60) = $600 per order

So, overhead costs are:

Product L Product M
Machine hour driven costs 150,000 70,000
Set-up driven costs 4,000 16,000
Orders driven costs 9,000 36,000
163,000 122,000
Units produced 5,000 7,000
Overhead cost per unit 32.60 17.43