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    Imhiding Posts: 14, Reputation: 1
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    Oct 24, 2011, 12:18 PM
    I do not understand Activity-Based Costing. I need help with a problem.
    I am totally lost in what information I shouyld put where. I am missing a key part of understanding this process and I do not know what it is. This is what I have done on this problem:

    Product Line Batch level

    Manufacturing OH Costs 600,000 400,000
    Total Units of Activity (800,000) DM & DL (900,000)
    Manufacturing OH Application Rate 600,000/800,000 400,000/900,000
    Manufacturing OH Applied to Units: 15 Units: 10
    Standard Products
    Manufacturing OH Applied to Units: 60 Units: 30
    Custom Products
    Total Manufacturing OH Applied

    Standard Products Custom Products
    Sales 1,200,000 1,800,000
    Direct Materials (200,000) (300,000)
    Direct Labor (600,000) (600,000)
    *Manufacturing OH (500,000) (500,000)
    Gross Margin (100,000) 400,000


    Total Mfg. OH Cost Stand Pro Custom Prod

    Batch-Level Manufacturing OH $ 600,000 15 Batches 60 Batches
    Product-Line Manufacturing OH 400,000 10 lines 30 Lines
    $1,000,000

    I am suppsoe to prepare a Gross Margion calculation for this company"s two divisions assuming that manufacturing overthead is alloctaed based on the number of batches & number of product lines. In also states that *Manufacturing OH is allocated to production based on the amount of direct labor cost.

    In my numbers, the total units of activity under the Manufacturing OH Costs I used the direct materials and direct labor - where did I go wrong?

    Can someone please explain how I would go about getting the correct information where it belongs. I believe I am way off - I am totally lost!

    Thanks

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