Standard Cost Allocation Method

Standard Unit Cost Valves Pumps Flow Controllers

Material 16.00 20.00 22.00
Direct Labor ($ 16/ hr) 4.00 8.00 6.40
Mfg Overhead @ 439% of direct Labor 17.55 35.10 28.08
Standard Unit Cost 37.55 63.10 56.48

Overhead
Machine Depreciation 270,000.00
Set Up labor (168 hr x $ 16/ hr) 2,688.00
Receiving 20,000.00
Materials handling 200,000.00
Engineering 100,000.00
Packaging and Shipping 60,000.00
Maintenance 30,000.00
Total 682,688.00
Total Run labor (9725 hr x $ 16/ hr) 155,600.00
Overhead Rate 439%
 Revised Cost Allocation Method

Revised Standard Cost Valves Pumps Flow Controllers

Material 16.00 20.00 22.00
Material Overhead 7.69 9.61 10.57
Set-up Labor 0.02 0.05 0.48
Direct Labor 4.00 8.00 6.40
Other Overhead (Machine hr basis) 21.30 21.30 8.52
Revised Standard Cost 49.00 58.95 47.97

Material Related Overhead Valves Pumps Flow Controllers

Receiving 20,000.00
Materials handling 200,000.00
Total machine related OHE 220,000.00
Total Material cost 458,000.00
Overhead Absorption Rate 0.48

Other Overhead Valves Pumps Flow Controllers

Machine Depreciation 270,000.00
Engineering 100,000.00
Packaging and Shipping 60,000.00
Maintenance 30,000.00
Total 460,000.00
Total Machine Usage 10,800.00
Overhead Absorption Rate 42.59
Machine hr / unit 0.50 0.50 0.20
Setup Labour Valves Pumps Flow Controllers
Units 7,500.00 12,500.00 4,000.00
Time / production run 8.00 8.00 12.00
Labour Rate/ Hr 16.00 16.00 16.00
No of production run 1.00 5.00 10.00
Labour consumption/ run 128.00 128.00 192.00
Labour consumption 128.00 640.00 1,920.00
Setup Labour / unit 0.02 0.05 0.48
 Transaction based allocation
Category Valves Pumps Controllers Valves Pumps Controllers Total Cost
Receive each Component 600 3800 15600 0.03 0.19 0.78 20000
once per run
Handle each component 6000 38000 156000 0.03 0.19 0.78 200000
once per run
One packing order per 1800 13800 43800 0.03 0.23 0.73 60000
shipment
Estimated engineering 20000 30000 50000 0.2 0.3 0.5 100000
work-order percentage
Machine-hour basis 105000 174000 21000 0.35 0.58 0.07 300000
Total 133400 259600 286400
Overhead per unit 17.79 20.77 71.60

Direct Labor 4 8 6.4

Set up Labor 0.02 0.05 0.48
Material 16 20 22
Total Cost 37.81 48.82 100.48
 No. of Units
Valves Pumps Controllers

7500 12500 4000

 Actual Selling Unit Cost Profit/Unit Units Produced Gross Margin
Price/Unit
Standard Costing System
Valves 57.78 37.56 20.22 7500 35%
Pumps 81.26 63.12 18.14 12500 22%
Flow Controllers 97.07 56.5 40.57 4000 42%
Net Income

Activity Based Costing

Valves 57.78 37.81 19.97 7500 35%
Pumps 81.26 48.82 32.44 12500 40%
Flow Controllers 97.07 100.48 -3.41 4000 -4%
Net Income

Revised Standard Cost

Valves 57.78 49 8.78 7500 15%
Pumps 81.26 58.95 22.31 12500 27%
Flow Controllers 97.07 47.96 49.11 4000 51%
Net Income
Net Income

151650
226750
162280
540680

149775
405500
-13640
541635

65850
278875
196440
541165