April 30, 2014
Broadening your perspective
Broadening Your Prospective 17-2 “Managerial Perspective” Activity Cost
Pool Annual Cost
Market analysis $1,050,000 Product design 2,350,000
Product development 3,600,000 Prototype testing 1,400,000
Activities Cost Drivers Estimated Drivers
Market analysis Hours of analysis 15,000 hours
Product design Number of designs 2,500 designs
Product development Number of products 90 products
Prototype testing Number of tests 500 tests
1. Compute the activity-based overhead rate for each activity cost pool. Activity-based overhead is determined by dividing estimated overhead by the estimated cost drivers.
Activity cost Pool Estimated Overhead /Cost drivers=ACB Overhead Rate Market analysis 1,050,000/ 15,000=70
2. How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided 280 designs relating to 10 products, and requested 92 engineering tests?
The in-house manufacturing department charge will be $1,046,800. The dollar amount is achieved by multiplying the overhead rates of each activity to the dollar amount. Multiplying the overhead rates of each activity to the amount of consumed for the activity. Add together for the total.
3. How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests?
$539,320 is the basis for pricing the R&D bid. The outside company will be supplied these numbers for a point to break even.
(3*40,000= 120,000), (70*2,800=196,000)
4. What is the benefit to Ideal Manufacturing of applying activity-based costing to its R&D activity for both in-house