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GAMMA produces over a hundred different types of residential water faucets as its

Delta, Florida plant .This plant uses activity -based costing to find out product costs.

The following table summarizes the plant's overhead for the year and the cost drivers

Used for each activity center:

Summary of plant Overhead and Activity Centers

Total cost
(millions
Activity center of dollars) Cost driver Amount of cost Activity cost per unit
&nbs p; &n bsp; Driver of cost drive

Materials handling $20.8 Direct materials $130 million $ 0.16

Purchasing 13.8 part numbers 800 $17,250

Set-up labor 6.8 &n bsp;Batches 500 $13,600

Engineering 10.9 Number of products 125 $87,200

Occupancy 16.2 &nb sp;Direct labor $ 90 million $0.18

----------------
Total plant overhead $ 68.5
----------------

One faucet model GAMMA manufactures is Explorer .Its total product cost is as follows:

Direct labor ; &nb sp; $ 121,700

Direct materials & nbsp; ; 90,500

Materials handling $ 90,500 $ 0.16 14,480

Purchasing 9 17,250 &nb sp; 155,250

Setup ; 8 13,600 &n bsp; 108,800

Engineering ; 1 87,200 &nb sp; 87, 200

Occupancy $121,70 0 $0.18 &nbs p; 21,906
&nbs p; &n bsp; ---------------------

Total cost &nbs p; $599,836

Number of units manufactured &nbs p; 12,500
&nbs p; &n bsp; ---------------------

Product cost per unit &nbs p; $ 47.99

&nbs p; &n bsp; ----------------------

Required problem:

find out the product cost per unit of the Explorer faucet using absorption costing where plant

Overhead is assigned to products using direct labor dollars.

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M928628

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