# Iet Theory of Explanation

IET 105 HW7 Solution

Activity-Based Costing:
Determine the product cost per unit for each product using (1) Conventional method and (2) Activity-Based Costing method.

Resources|A|B|
Production, units|2,000|1,000|
Direct labor cost|\$60,000|\$60,000|
Direct materials cost|\$20,000|\$40,000|
Indirect material|\$23,000|
Utilities|\$24,000|
Rent|\$15,500|

Indirect labor|65% to A and 35% to B|
Indirect material|80% to A and 20% to B|
Utilities|KW:A used 160,000 KWB used 70,000 KW|
Rent|floor space:A uses 5,000 square feetB uses 4,000 square feet|
Other|difficult to classify to A or B(use conventional approach – based on direct labor cost)|

1.
Conventional method
From|Product A Cost per unit|Product B Cost per unit|
Direct labor cost|\$30.00|\$60.00|
Direct materials cost|\$10.00|\$40.00|
Total Cost|\$69.50|\$159.00|
2. Activity-Based Costing method
Overheads of:|Driver (or based on):|In proportion of:|
Indirect labor|65% to A and 35% to B|0.65 to A|
||0.35 to B|
Indirect material|80% to A and 20% to B|0.80 to A|
||0.20 to B|
Utilities|KWA used 160,000 KWB used 70,000 KW|0.696 to A|
||0.304 to B|
Rent|floor spaceA uses 5,000 sq/ftB uses 4,000 sq/ft|0.556 to A|
||0.444 to B|
Other|Based on direct labor cost|0.500 to A|
||0.500 to B|
|||
From|Product A Cost per unit|Product B Cost per unit|
Direct labor cost|\$30.00|\$60.00|
Direct materials cost|\$10.00|\$40.00|
Indirect labor |\$14.79|\$15.93|
Indirect materials|\$9.20|\$4.60|
Utilities|\$8.35|\$7.30|
Rent|\$4.31|\$6.88|