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This exercise will deal with the costing of a product using a predetermined overhead rate and Activity Based Costing (ABC). Please note the different results from using the different methods.

The Sample Company wants to compare the results from the use of a predetermined overhead rate versus Activity Based Costing (ABC). The following are the estimated costs:

Estimated Manufacturing Overhead					$ 1,000,000.00
Estimated direct labor hours (DLH)					40000
Predetermined Overhead Rate					$ 25.00	per DLH
				Mono-Relay		Bi-Relay
Time to Make One Unit				0.75		1	Hours
Estimated Units Produced				40000		10000
Estimated Total DLH				30000		10000
Direct Materials				$ 35.00		$ 48.00
Direct Labor $12 per hour				$ 9.00		$ 12.00

				Estimated Overhead	Expected Activity
Maintaining Parts Inventory				$ 180,000.00	225
Processing Purchase Orders				$ 90,000.00	1000
Quality Control				$ 230,000.00	5750
Machine related				$ 500,000.00	10000
				$ 1,000,000.00
				Mono-Relay	Bi-Relay	Total
Maintaining Parts Inventory				75	150	225
Processing Purchase Orders				800	200	1000
Quality Control				2500	3250	5750
Machine related				4000	6000	10000

Compute the direct material, direct labor, overhead and total unit cost using the following:

Predetermined overhead rate

Activity Based Costing (ABC)

Please use the following Excel template:

The template is below

Estimated Manufacturing Overhead					$1,000,000.00
Estimated DLH					40000
Predetermined Overhead Rate					$25.00	per DLH
				Mono-Relay		Bi-Relay
Time to Make One Unit				0.75		1	hours
Estimated Units Produced				40000		10000
Estimated Total DLH				30000		10000
Direct Materials				$35.00		$48.00
Direct Labor		$12 per hour		$9.00		$12.00
Manufacturing Overhead
Total Unit Cost
ABC
				Estimated Overhead	Expected Activity	Rate
Maintaining Parts Inventory				$180,000.00	225		per part type
Processing Purchase Orders				$90,000.00	1000		per purchase order
Quality Control				$230,000.00	5750		per test
Machine related				$500,000.00	10000		per machine hour
				$1,000,000.00
				Mono-Relay	Bi-Relay	Total
Maintaining Parts Inventory				75	150	225
Processing Purchase Orders				800	200	1000
Quality Control				2500	3250	5750
Machine related				4000	6000	10000
				Mono-Relay	Bi-Relay
Maintaining Parts Inventory				$-	$-
Processing Purchase Orders				$-	$-
Quality Control				$-	$-
Machine related				$-	$-
Total				$-	$-
Direct Materials				$35.00	$48.00
Direct Labor				$9.00	$12.00
Overhead per unit				$-	$-
Total Unit Cost

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