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BUS 3304 Written Assignment Unit 2

The document discusses how a company called Pectrov uses activity-based costing to allocate overhead costs to products. It provides an example of predetermined overhead rates and allocates overhead to two products, MX1 and MX2, based on their actual activity levels for the month.

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93 views4 pages

BUS 3304 Written Assignment Unit 2

The document discusses how a company called Pectrov uses activity-based costing to allocate overhead costs to products. It provides an example of predetermined overhead rates and allocates overhead to two products, MX1 and MX2, based on their actual activity levels for the month.

Uploaded by

Cherry Htun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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BUS 3304 – Managerial Accounting

University of the People

Computing Product Costs Using ABC


Pectrov Company

For part (a), including the estimated overhead costs and the estimated cost driver activity along

with the predetermined overhead rates, the completed template would be as follows:

Activity Cost Driver Estimated Estimated Cost Predetermined

Overhead Driver Activity Overhead Rate

Costs

Operation Setup Number of $60,000 100 runs $600 per

production units production run

Materials Yards of $140,000 10,000 yards $14 per yard

handling materials purchased

purchased

Quality Control Number of $80,000 800 inspections $100 per

inspections inspection

Total $280,000

Now for part (b), using the predetermined overhead rates and the actual cost driver activities for

the month of March, along with the calculated overhead allocated for each product:

For MX1:

- Overhead from production setups: 3 runs at $600 per run = $1,800

- Overhead from materials handling: 550 yards at $14 per yard = $7,700
- Overhead from quality control: 40 inspections at $100 per inspection = $4,000

- Total overhead allocated for MX1: $13,500

For MX2:

- Overhead from production setups: 6 runs at $600 per run = $3,600

- Overhead from materials handling: 230 yards at $14 per yard = $3,220

- Overhead from quality control: 10 inspections at $100 per inspection = $1,000

- Total overhead allocated for MX2: $7,820

MX 1 MX2

Pre-determined Overhead Cost driver Overhead Cost driver Overhead

Rate Activity Allocated Activity Allocated

$600 per production run 3 runs $1,800 6 runs $3,600

$14 per yard purchased 550 yards $7,700 230 yards $3,220

$100 per inspection 40 $4,000 10 $1,000

inspections inspections

Total $13,500 $7,820

This table summarizes the overhead costs allocated to each product based on the actual activity

for the month of March.


Reference

Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0.

https://saylordotorg.github.io/text_managerial-accounting/s07-how-does-an-organization-use-

a.html

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