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Using the information provided below, complete the following two tabs in this MS Excel Workbook:
	MOH Cost Allocation Traditional Methodology
	MOH Cost Allocation Activity-based Costing (ABC) Methodology (complete partially completed analysis)
The background paper, Management Accounting Concepts, provides useful guidance for completing this assignment.
	Compare the results you obtained in these two tabs. Describe briefly below the likely effects of management's decision to adopt the traditional method, rather than the ABC method, of allocating MOH costs to products. (In formulating your response, it may be helpful to review pages 43 - 44 of the background paper, Management Accounting Concepts.) Limit the length of your response to 150 words.
	Replace this text with your response.
Company information:
A division of Premium Products Company operates from a single plant located in the midwestern U.S.
The division makes and sells 3 products. Shown below for each product is management's fiscal year ending (FYE) Dec. 31, 20X2 plans for:
						Product
						A-199			B-299		C-399
	Units of production and sales							10,000		10,000		10,000
	Production batch size (units in each production run)							25		40		100
	Product unit selling price							$ 197.00		$ 170.00		$ 148.00
Management organized the plant to operate in the nine service and production departments listed below. For each department listed is shown:
	The normal, expected MOH costs (obtained from the approved production plan and operating budget for the FYE Dec. 31, 20X2)
	The MOH allocation base selected by management, which adopted the traditional MOH allocation method (see next tab in this workbook)
	The planned (i) total value of each MOH allocation base and (ii) consumption of each base by each production department
				$US	MOH allocation base					Casting		Machining		Assembly		Packing		Total
	Production scheduling			151,000	Machine hours (MHs)			Unit-related		9,000		22,500		9,000		4,500		45,000
	Quality inspection			313,000	Batches			Unit-related		75		300		225		150		750
	M&E* setup			83,000	M&E setups hours			Batch-related		980		2,450		980		490		4,900
	M&E* maintenance			502,000	M&E Maint. Dept. hours			Unit-related		4,500		9,000		2,700		1,800		18,000
	Building and admin.			522,000	Full-time employees			Plant-related		8		12		10		10		40
	Casting			125,000	MHs			Unit-related		9,000		22,500		9,000		4,500		45,000
	Machining			250,000	MHs			Unit-related		9,000		22,500		9,000		4,500		45,000
	Assembly			106,000	Direct labor hours (DLHs)			Unit-related		4,100		17,000		10,500		10,400		42,000
	Packing			71,000	DLHs			Unit-related		4,100		17,000		10,500		10,400		42,000
	Total			2,123,000
	* M&E: machinery and equipment
The company's engineering department determined the following standard per-unit requirements of:
	MHs and DLHs in each production department
	Direct material and direct labor cost
								Product
	Per-unit requirements							A-199		B-299		C-399
		MHs in each production department:
			Casting					0.3		0.3		0.3
			Machining					0.9		0.7		0.6
			Assembly					0.4		0.3		0.2
			Packing					0.2		0.2		0.1
			Total					1.8		1.5		1.2
		DLHs in each production department:
			Casting					0.2		0.2		0.2
			Machining					1.0		0.6		0.2
			Assembly					0.5		0.4		0.3
			Packing					0.3		0.3		0.3
			Total					2.0		1.5		1.0
	Cost per unit:
		Direct material						$ 28.00		$ 25.00		$ 22.00
		Direct labor (including "fringe")						$ 38.00		$ 33.00		$ 28.00
The facilitator will grade this assignment, assigning up to 100 points for it as follows:											Maximum		Earned
	Accurate, essentially complete, and concise description of the reasons that the traditional
	method of allocating MOH costs may lead to distortions in computed product unit costs and
	the adverse effects such distortions may have on managements decisions											20		20		points
	Traditional method of MOH cost allocation Accuracy and completeness of:
		Amounts and other information input into MS Excel worksheet										15		15		points
		Accuracy of computations of per-unit MOH cost and total cost of each product										25		25		points
	Activity-based method of MOH cost allocation Accuracy and completeness of:
		Amounts and other information input into MS Excel worksheet										15		15		points
		Accuracy of computations of per-unit MOH cost and total cost of each product										25		25		points
			Total points									100		100

Premium Products Company
Manufacturing Overhead (MOH) Cost Allocation Traditional Methodology
For fiscal year ending (FYE) December 31, 20X2
(Amounts determined as part of production plan and operating budget approved on November 5, 20X1)
	Normal,
	expected			Allocation of Service Dept Costs to Production Depts
Service departments:	MOH costs	MOH allocation base		Casting	Machining	Assembly	Packing	Total
Production scheduling dept.	$ 151,000	Number of MHs	Level	9,000	22,500	9,000	4,500	45,000
(Batch-related)		(Unit-related)	Ratio	0.200	0.500	0.200	0.100	1.000
			$US Alloc.	$ 30,200	$ 75,500	$ 30,200	$ 15,100	$ 151,000
Quality inspection department			Level					-
(Batch-related)			Ratio					#DIV/0!
			$US Alloc.					$ -
M&E setup department			Level					-
(Batch-related)			Ratio					#DIV/0!
			$US Alloc.					$ -
M&E maintenance dept.			Level					-
(Unit-related)			Ratio					#DIV/0!
			$US Alloc.					$ -
Building and administration (1)			Level					-
(Plant-related			Ratio					#DIV/0!
			$US Alloc.					$ -
Total service departments	$ 151,000	Total	$US Alloc.	$ 30,200	$ 75,500	$ 30,200	$ 15,100	$ 151,000
Production departments (2):
Casting	$ 125,000	(Unit-related)		$ 125,000				$ 125,000
Machining					$ -			-
Assembly						$ -		-
Packing							$ -	-
Total production departments	$ 125,000			$ 125,000	$ -	$ -	$ -	$ 125,000
Total normal, expected MOH costs	$ 276,000	Total	$US Alloc.	$ 155,200	$ 75,500	$ 30,200	$ 15,100	$ 276,000
		MOH allocation base
		Number of MHs	Level	9,000				9,000
			Rate	$ 17.24		-	-
		Number of DLHs	Level			10,500		10,500
			Rate	-	-	$ 2.88
	Premium Products Company
	Product Unit Costs Traditional MOH Cost Allocation Methodology
	For fiscal year ended (FYE) December 31, 20X2
	(Use information in tables provided in first workbook tab)
				Product A-199	Product B-299	Product C-299
	MHs required per unit in:
	Casting department			0.3
	Machining department				0.7
	Assembly department				0.3
	Packing department					0.1
	DLHs required per unit in:
	Casting department					0.2
	Machining department			1.0
	Assembly department
	Packing department				0.3
	Cost per unit:
	Direct material			$ 28.00
	Direct labor (including "fringe")				33.00
	MOH:
	Casting (MOH rate/MH x MHs/unit)			5.17	-	-
	Machining (MOH rate/MH x MHs/unit)			-	-	-
	Assembly (MOH rate/DLH x DLHs/unit)			-	-	-
	Packing (MOH rate/DLH x DLHs/unit)			-	-	-
	Total cost per unit			$ 33.17	$ 33.00	$ -
(1) Building and administration is comprised of:
Building costs, including depreciation, power and water, property taxes and insurance, and maintenance
Supervisory costs of division (plant) vice president, which includes salary and related personnel costs
Plant-level human resources and accounting personnel, which includes salaries and related personnel costs, and the costs of telecommunications, office
supplies and equipment, and contract payroll services.
(2) Production department costs include the costs of supervisory and other employees not directly involved in production of goods (i.e., indirect labor) and M&E
used in production departments, including depreciation and rent, cost of refurbishing PP&E, property taxes and property insurance related to M&E
DLHs: Direct labor hours (recorded work time of production employees)				MHs: Machine hours (recorded operating time)
M&E: Machinery and equipment				MOH: Manufacturing overhead costs

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