Final answer:
The total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker are calculated using both conventional costing and activity-based costing. The per-unit costs differ between the two costing methods.
Step-by-step explanation:
Activity-Based Costing (ABC) and Conventional Costing both aim to allocate manufacturing overhead costs to products. However, they differ in the way they assign costs.
Conventional Costing:
In conventional costing, manufacturing overhead costs are assigned based on a single cost driver, which is often direct labor dollars. This means that the manufacturing overhead costs are allocated to products based on the proportion of direct labor dollars incurred for each product.
Activity-Based Costing:
In activity-based costing, manufacturing overhead costs are assigned based on multiple cost drivers called activities. These activities represent different manufacturing processes or tasks, such as materials acquisition and inspection, materials movement, and scheduling. The costs of these activities are then allocated to products based on the usage or consumption of these activities by each product.
Now let's calculate the total and per-unit costs of manufacturing the Gas Cooker and Charcoal Smoker using both costing methods:
(a) Conventional Costing:
Using the overhead rate of 7.3809 provided:
Total manufacturing overhead cost = (Gas Cooker direct labor cost + Charcoal Smoker direct labor cost) * Overhead rate = ($20,000 + $27,000) * 7.3809 = $371,618.
Total cost of Gas Cooker = Direct materials cost + Direct labor cost + Manufacturing overhead cost = $20,000 + $20,000 + $371,618 = $411,618.
Per-unit cost of Gas Cooker = Total cost of Gas Cooker / Number of units = $411,618 / 1,000 = $411.62.
Total cost of Charcoal Smoker = Direct materials cost + Direct labor cost + Manufacturing overhead cost = $100,000 + $27,000 + $371,618 = $498,618.
Per-unit cost of Charcoal Smoker = Total cost of Charcoal Smoker / Number of units = $498,618 / 4,000 = $124.66.
(b) Activity-Based Costing:
Let's calculate the cost of each activity:
Materials acquisition and inspection cost = Amount of direct materials cost * Overhead rate = $120,000 * 7.3809 = $885,708.
Materials movement cost = Number of batch moves * Overhead rate = 20 * 7.3809 = $147.618.
Scheduling cost = Number of batches * Overhead rate = 10 * 7.3809 = $73,809.
Now, let's calculate the manufacturing overhead cost for each product:
Gas Cooker manufacturing overhead cost = (Gas Cooker direct labor cost / Total direct labor cost) * (Materials acquisition and inspection cost + Materials movement cost + Scheduling cost) = ($20,000 / ($20,000 + $27,000)) * ($885,708 + $147.618 + $73,809) = $370,251.
Total cost of Gas Cooker = Direct materials cost + Direct labor cost + Manufacturing overhead cost = $20,000 + $20,000 + $370,251 = $410,251.
Per-unit cost of Gas Cooker = Total cost of Gas Cooker / Number of units = $410,251 / 1,000 = $410.25.
Charcoal Smoker manufacturing overhead cost = (Charcoal Smoker direct labor cost / Total direct labor cost) * (Materials acquisition and inspection cost + Materials movement cost + Scheduling cost) = ($27,000 / ($20,000 + $27,000)) * ($885,708 + $147.618 + $73,809) = $471,246.
Total cost of Charcoal Smoker = Direct materials cost + Direct labor cost + Manufacturing overhead cost = $100,000 + $27,000 + $471,246 = $598,246.
Per-unit cost of Charcoal Smoker = Total cost of Charcoal Smoker / Number of units = $598,246 / 4,000 = $149.56.
Therefore, the total and per-unit costs for both products differ when using the different costing methods. The per-unit costs of the Gas Cooker and Charcoal Smoker using the conventional costing method are $411.62 and $124.66, respectively. On the other hand, the per-unit costs using the activity-based costing method are $410.25 and $149.56, respectively. This shows that the choice of costing method can impact the cost allocation and subsequently the per-unit costs of the products.