Assume that one of ITW's divisions has the following predicted indirect costs and cost drivers for 2013 for the given activity pools:
Fabrication Dept Finishsing Dept Cost Driver
Maitenance $20,000 $10,000 machine hours
Materials Handling 30,000 15,000 Materials moves
Machine Setups 70000 5,000 machine setups
Inspections 0 25,000 inspections hours
The following activity predictions were also made for the year.
Fabrication dep Finishing Dep
Machine Hours 10,000 5,000
Materials moves 3,000 1,500
Machine setup 700 50
Inspection hours 0 1,000
It is assumed that the cost per unit of acitivy for a given activity does not vary between departments
Suppose ITW's divisional manager is trying to evaluate the company's product mix strategy regarding two of its five produts modes, COBRA and ASP. The company has been using a plant-wide overheada based on machine hours but is considering switching to either department rates or activity based rate. THe production manager has provided the following data for the production of a batch of 100 units each of these models>
Cobra ASP
Directr Materials cost 12,000 18,000
Direct labor cost 5,000 4,000
Machine hrs (fabrication) 500 700
Machine hrs (finishing) 200 100
Material moves 30 50
Machine setups 5 9
Inspection hrs 30 60
Requiired:
A. Determine the cost of one unit of cobra and asp, asumming a plant wide overhead rate is used based on total machine hours
b. Determine the cost of one unit of cobra and asp. assuming department overhead rate are used. Overhead is assinged based on machine hours in both deparments.