Reference no: EM132638742

Boxes Ltd manufactures a variety of special packaging boxes used in the pharmaceutical industry. The company's Melbourne plant is semi-automated, but the special nature of the boxes requires some manual labour. The accountant has chosen the following overhead activities, activity drivers, and costs per unit of activity driver for the plant's product costing system. Activity Annual activity cost Quantity of activity driver Activity driver

Cost per unit of activity driver Purchasing, storage and material handling $ 200 000 $1 000 000

Raw material costs 20% of material cost

Engineering and product design 100 000 5 000 hr

Hours in design department $20 per hour

Machine setup costs 70 000 1 000 runs

Production runs $70 per production runs

Machine depreciation and maintenance 300 000 100 000 hr

Machine hours $3 per hour

Factory depreciation, taxes, Insurance and utilities 200 000 100 000 hr

Machine hours $2 per hour

Other manufacturing costs 150 000 100 000 hr

Machine hours $1.50 per hour

Total ________ $1 020 000

Two recent production orders had the following requirements:

20 000 units of box A52 10 000 units of box A29

Direct labour hours 42 21

Raw material cost $40 000 $35 000

Hours in design department 10 25 Production runs 2 4

Machine hours 24 20

Required:

Question a) Using ABC, calculate the total overhead that should be assigned to each of the two production orders, A52 and A29. Present your answer in a format similar to the following table below: PaActivity BOX A52 BOX A29

Question b) Calculate the overhead cost per box in each order.

Question c) Suppose the Melbourne plant used a single plant wide predetermined overhead rate based on direct labour hours. The direct labour budget was 4 000 hours. (i) Calculate the predetermined overhead rate per direct labour hour (ii) Calculate the total overhead costs that would be assigned to the order for box A52 and the order for box A29. (iii) Calculate the overhead cost per box in each order

Question d) Why do the two product costing systems (i.e. ABC and a single plant wide overhead rate) resulted in great differences in overhead costs per box?