Apply ABC to Manufacturer
Casey Company has five activity cost pools and two products. It estimates production of 200,000 units of its automobile scissors jack and 80,000 units of its truck hydraulic jack. Having identified its activity cost pools and the cost drivers for each cost pool, Casey Company accumulated the following data relative to those activity cost pools and cost drivers.
| Annual Overhead Data | Estimated Use of Cost Drivers per Product | ||||
| Activity Cost Pools | Cost Drivers | Estimated Overhead | Estimated Use of Cost Drivers per Activity | Scissors Jacks | Hydraulic Jacks |
| Ordering and receiving | Purchase orders | $200,000 | 2,500 orders | 1,000 | 1,500 |
| Machine setup | Setups | 600,000 | 1,200 setups | 500 | 700 |
| Machining | Machine hours | 2,000,000 | 800,000 hours | 300,000 | 500,000 |
| Assembling | Parts | 1,800,000 | 3,000,000 parts | 1,800,000 | 1,200,000 |
| Inspecting and testing | Tests | 700,000 | 35,000 tests | 20,000 | 15,000 |
| $5,300,000 | |||||
Using the above data, do the following.
a. Prepare a schedule showing the computations of the activity-based overhead rates per cost driver.
b. Prepare a schedule assigning each activity’s overhead cost to the two products.
c. Compute the overhead cost per unit for each product.
d. Comment on the comparative overhead cost per unit.
