Broadening Your Prospective
Broadening Your Prospective 17-2 “Manager Perspective”
ACC/561
July 9, 2013
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
Product Design 2,350,000 2,500 $940
Product development 3,600,000 90 $40,000
Prototype testing 1,400,000 500 $2,800
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 total charged to an in-house manufacturing department would be $1,046,800. This dollar amount is determined by multiplying the overhead rates of each activity to the amount consumed for that activity and added together for a total. (1,800*70= 126,000), (280*940=263,200) (10*40,000=400,000), (2,800*92=257,600)
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 would serve as the basis for pricing an R&D bid with an outside company because that dollar amount is the breakeven point. (800*70=56,000), (178*940=167,320), (3*40,000= 120,000),
ACC/561
July 9, 2013
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
Product Design 2,350,000 2,500 $940
Product development 3,600,000 90 $40,000
Prototype testing 1,400,000 500 $2,800
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 total charged to an in-house manufacturing department would be $1,046,800. This dollar amount is determined by multiplying the overhead rates of each activity to the amount consumed for that activity and added together for a total. (1,800*70= 126,000), (280*940=263,200) (10*40,000=400,000), (2,800*92=257,600)
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 would serve as the basis for pricing an R&D bid with an outside company because that dollar amount is the breakeven point. (800*70=56,000), (178*940=167,320), (3*40,000= 120,000),