Costing and Budgeting Analysis for Manufacturing and Production

Solution-1
Classification of Costs:
Cost Item Variabl
e Cost
Fixed
Cost
Produc
t Cost
Conversion
Costs
Selling &
Admin Cost
Direct labor cost X X X
Depreciation on factory space X X X
Direct Material X X
Rental Cost of the small
warehouse X X X
Advertising cost X X
Production supervisor’s salary X X X
Sales commission X X

Solution-2
Part-1
Calculation of unit manufacturing cost for each product
Activity Cost
Pool
Actual Activity Budgeted
Activity
rate
Overhead allocation
Product
C Product D Total Product C Product D
Machine set ups 100 190 290 50 5,000 9,500
Design 500 1,250 1,750 60 30,000 75,000
General Factory 4,160 2,100 6,260 9 37,440 18,900
119 72,440 103,400
No. of units produced 4,000 2,000
Cost per unit 18.11 51.70
Hence, the unit manufacturing cost for Product C is $18.11 and Product D is $ 51.70.
Part-2
Activity a. Cost Hierarchy
Level
b. Allocation base/ cost
driver
1. Machine set ups Batch Level Setup hours
2. Design Product Level No. of design layouts

Part-3 Calculation of over or under allocation of overheads
Activity Cost
Pool
Actual Overheads allocated Budgeted Overhead allocation Under or
over
allocatio
n Nature
Product
C
Product
D Total
Product
C
Product
D Total
Machine set
ups 4,700 8,930 13,630 5,000 9,500 14,500 870
Under
allocation
Design 32,500 81,250 113,750 30,000 75,000 105,000 (8,750)
Over
allocation
General
Factory 45,760 23,100 68,860 37,440 18,900 56,340 (12,520)
Over
allocation
82,960 113,280 196,240 72,440 103,400 175,840 (20,400)
Wn-1: Calculation of actual overheads allocation
Activity Cost
Pool
Actual
overhead
costs
Actual Activity Actual
Activity
rate
Overhead allocation
Product
C
Product
D Total Product C Product D
Machine set ups 13,630 100 190 290 47 4,700 8,930
Design 113,750 500 1,250 1,750 65 32,500 81,250
General Factory 68,860 4,160 2,100 6,260 11 45,760 23,100
196,240 123 82,960 113,280