Activity Based Costing & Pricing

This assignment focuses on Activity Based Costing (ABC) calculations for two products, Fred and Martha. It requires students to determine the cost of each activity driver (machine hours, production runs, etc.), calculate the total overhead costs, and then allocate those costs to each product based on their consumption of activities. The assignment further delves into calculating the cost per unit for both Fred and Martha by considering direct materials, labor, and allocated overhead costs. Finally, students determine the selling price for each product based on a 120% markup over the cost.

Part C
Calculation of number of activities required
Activity Cost Pool Cost driver Budgeted
Level
Overhead
Amount
Cost
per
activity
Number of
Activity
Required
Fred Marth
a
Machine related
costs Machine hours 9,000 450,000 50 4,000 5,000
Setup and
inspection
Number of production
runs 40 180,000 4,500 20 20
Engineering Engineering change
order 100 90,000 900 75 25
Plant related costs Square footage of
space 1,920 96,000 50 1,536 384
816,000 5,500 5,631 5,429
Calculation of cost per unit for Fred
Particulars
Fred
Units or number
of activity
required
Rate per
unit Total
Direct Material 1,000 40 $40,000
Direct Labour 1,000 30 $30,000
Machine related
costs 4,000 50 $200,000
Setup and
inspection 20 4,500 $90,000
Engineering 75 900 $67,500
Plant related costs 1,536 50 $76,800
Total Costs $504,300
Number of Units $1,000
Cost per unit
(Total costs /
number of units)
$
504.30
Calculation of cost per unit for Martha
Particulars
Martha
Units or number
of activity
required
Rate per
unit Total
Direct Material 5,000 60 $300,000
Direct Labour 5,000 45 $225,000
Machine related
costs 5,000 50 $250,000
Setup and 20 4,500 $90,000

inspection
Engineering 25 900 $22,500
Plant related costs 384 50 $19,200
Total Costs $906,700
Number of Units $5,000
Cost per unit
(Total costs /
number of units)
$
181.34
Part D
Calculation of selling price per unit for Fred and Martha
Selling price is 120% of cost which means profit is 20% of cost. Therefore,
Particulars Fre
d
Marth
a
Cost per unit 500 180
Add: Profit Margin (20% of
cost) 100 36
Selling Price 600 216