ABC 226 Quiz – Summer One 2014 ~ Zigeloeffer Ltd. produces two types of elliptical exercisers, the Mucho-Dinero and the Dumpy.Ms. Fluffy Flaxoil, the president, has heard that using Activity-Based Costing overhead allocations might give her more accurate product costing. And Fluffy loves to be accurate almost as much as she loves to be fit, trim and rich. Right now they just use a traditional, Single-Rate overhead allocation system based on machine hours. Below are some of the cost and activity information that a consultant has provided the firm to consider in deciding whether to switch to ABC.
Background: The company made 2,000 Mucho-Dinero exercisers and 9,000 Dumpy in 2012. The Mucho-Dinero uses 5 machine hours,1.5 hours of inspection time, ½ hour of equipment maintenance, and 4 direct labor hours to make. The Dumpy uses 3 hours of machine time, 1 hour of inspection, ½ hour of equipment maintenance and 2 hours of direct labor to manufacture. Estimated overhead costs and related 2012 data follow: (ATTACHED)
Required: What is the overhead cost that would be assigned to each product (Mucho-Dinero & Dumpy) for each of thetwo products?
a) Using Activity-based costing methods determine the total cost by product, and unit cost for each.
b) If they used the traditional, single-driver method, what would be the rate based on the above information.
Hint on the traditional rate question. This has NOTHING to do with the ABC question.Just go back to the way we did it before. Total up the overhead, get a rate >> you’re done.You do NOT have to apply the rate, figure cost by product, none of that, just calculate the single-driver rate