# abc costing

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Exercises (Group A)
(15-20 min.) E 4-22A
Req. 1
Plantwide

=

Estimated total manufacturing costs
Estimated cost allocation base

=
=

\$1,150,000
25,000* direct labor hours

=
=

\$46 per direct labor hour

*When calculating plantwide overhead rates, all direct labor hours incurred in the plant are used.

(continued) E 4-22A
Req. 2

=
=

Cost allocation base (estimated)

=

\$825,000
13,750 machine hours
\$60 per machine hour

\$325,000
13,000** direct labor hours

=
=

\$25 per direct labor hour

**When calculating the finishing departmental rate, only the direct labor hours incurred in the finishing department are used.
Req. 3
Overhead allocation based on single, plantwide rate:
Cost allocation base (actual)
× Plantwide cost allocation rate Overhead allocation

Job 450
5 DL hours

Job 455
5 DL hours

× \$46/ DL hour
\$ 230

× \$46 / DL hour
\$ 230

Req. 4
Overhead allocation based on departmental rates:
Job 450
Machining Department:
Departmental allocation rate
× Machine hours used by Job

×

\$60/ MH
3 MH
\$180

Job 455

×

\$60/ MH
6 MH
\$360

1

Finishing Department:
Departmental allocation rate
× DL hours used by Job
Total overhead allocation (from both departments

\$25/ DL hr
4 DL hrs
\$100

\$25/ DL hr
× 3 DL hrs
\$75

\$ 280

×

\$ 435

Req. 5
The single plantwide rate undercosts Job 450 and undercosts Job 455. Since Donovan sets the sales price at 125% of cost, and the job cost is affected by the allocation system used, the sales price will be affected by the allocation system used.

(15-20 min.) E 4-23A
Req. 1
West Horizon
Computation of Cost Allocation Rates

Activity
Materials handling
Machine setup
Insertion
Finishing

Total Activity
\$13,200
\$ 5,200

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