[nbohannon]

Hello
I am taking Managerial Accounting and I am LOST! I completely do not understand it and the teacher is not very helpful. The textbook is not helpful either. I need help! I am so behind on all my assignments. The question I have is:

Exercise 5-21

Volume-Based Cost Driver Versus ABC.

Tiago Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitablity of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines, from the following information.

Units produced... Lenes 25 mirrors 25
Material moves per product line Lenes 5 mirrors 15
Direct-labor Lenes 200 mirros 200

The total budgeted material-handling cost is 50,000 dollars

1. Under costing system that allocates overhead on the basis of direct-lbaor hours, the material handling cost allocated to one lens would be what amount?

2. Answer the sme question in requirement 1, but for mirrors.

3. Udner acitivy based costing abc , the material handling ost allocated to one lends would be what amount? The cost driver for the material handling activity is the number of material moves.
4. Answer the same question in requirement 3 bur for mirrors.

Help! I have no clue what to do..

[morgaine300]

[QUOTE=nbohannon;1895039]

Units produced... Lenes 25 mirrors 25
Material moves per product line Lenes 5 mirrors 15
Direct-labor Lenes 200 mirros 200

The total budgeted material-handling cost is 50,000 dollars

1. Under costing system that allocates overhead on the basis of direct-lbaor hours, the material handling cost allocated to one lens would be what amount?

Let's just start with this. First off, an overhead rate is thus:
estimated overhead costs
Estimated activity base

It works the same if you already know the figures (not estimates) and you just want to see how different methods will make things come out. So if you don't have something that says "estimated" don't get too worried about it. The activity base is the activity you're using to base the costs on - you've got to have something to base it on. In this case, you're using direct labor hours. Notice the hours are the same for lenses and mirrors, which is like saying you're splitting overhead up evenly. Whereas the material moves are only 5 for lenses but 15 for mirrors, meaning the mirrors would get more of the cost if you did it that way.

You have $50,000 of overhead costs. Since the direct labor hours is the same for both products, there's a faster way there. But that usually isn't going to be the case so you need to have a way that works for other scenarios. Those costs are for both products. If you're going to base this on direct labor hours, you're looking at the total hours to do both products. You have 400 total hours. So now you need to know what that cost is per one hour, i.e. you're dividing up your costs among all the hours to get a cost per hour.

Once you have that, you basically have your rate: it will be a cost per direct labor hour. Then to get it split among the two products, you take that rate and multiply out by how many hours there were for each individual product. And then make sure it adds back up to the $50,000 total.

If you can get through that way, you probably should be able to do the rest. Pay close attention to what they're asking you to do so that you're grabbing the correct figures.