Broadening your Perception

1. Compute the activity-based overhead rate for each activity cost pool. Activity-based overhead is determined by dividing estimated overhead by the estimated cost drivers. Activity cost Pool Estimated Overhead /Cost drivers=ACB Overhead Rate Market analysis 1,050,000/ 15,000=70

2. How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided 280 designs relating to 10 products, and requested 92 engineering tests? The in-house manufacturing department charge will be $1,046,800. The dollar amount is achieved by multiplying the overhead rates of each activity to the dollar amount. Multiplying the overhead rates of each activity to the amount of consumed for the activity. Add together for the total.

(1,800*70= 126,000),
(280*940=263,200)
(10*40,000=400,000),
(2,800*92=257,600)
3. How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests? $539,320 is the basis for pricing the R&D bid. The outside company will be supplied these numbers for a point to break even. (800*70=56,000),

(178*940=167,320),
(3*40,000= 120,000),
(70*2,800=196,000)

4. What is the benefit to Ideal Manufacturing of applying activity-based costing to its R&D activity for both in-house and outside charging purposes? The benefit of stepping outside of the box and applying for an activity-based R&D activity for both Ideal Manufacturing and an outside company is to oversee the operating costs of the R&D department. Getting the activity-based costing will help the company to assign the overhead cost adequately. Ideal Manufacturing has activities are split into four pools and activity-base costs. These pools and costs help to allocate the overhead dollars to the appropriate areas. By not spending the dollars, or over spending the dollars, the company has to supplement those monies from other areas of the company to make them work for them. This is not cost effective. The reason for the activity-based costing is to have the cost assigned to those activities of a product that will be using the activity, in the long run cutting costs. This is creating a more efficient process for the Ideal, and making their dollars more effective as well.