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 1,050,00015,000$70
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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 total charged to an in-house manufacturing department would be $1,046,800. This dollar amount is determined by multiplying the overhead rates of each activity to the amount consumed for that activity and added together for a 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 would serve as the basis for pricing an R&D bid with an outside company because that dollar amount is the breakeven point. (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 to Ideal Manufacturing of applying activity-based costing to its R&D activity for both in-house and outside charging purposes is it will allow the company to gain control of the operating costs of the department.
Activity-based costing allows a company to appropriately assign overhead head cost. For example, Ideal manufacturing activities fell into four pools and activity-based costing helped the company to properly allocate its overhead dollars. Under using or over using overhead dollars means the company has to supplement those funds from or to another activity which is a waste to the company. The basis of activity-based costing is to assign cost only to those activities of a product that is actually using the activity in essences cutting costs. This is not only a benefit to Ideal Manufacturing but to any company that is looking to become more efficient and effective.