Calculation of Overhead Rate per cost driver

Overhead Cost Pool Cost Driver

Machine Related
Plant management and facilities
Set-up labor
Receiving and production Control
Packaging and Shipping
Machine Hours
No.of production units
No.of production Setups
No.of Production runs
No.of Shipments

Allocation of Overhead cost to the products

Overhead Costs Rate per unit of Cost drivers
Machine Runs $ 10.00
Plant management and facilities $ 1.48
Set-ups $ 82.81
Production Runs $ 391.30
No.of Shipments $ 151.43
Total Overhead for product
Cost of Overhead per unit

Gross profit after implementing the Overhead cost

Geoffrey Doll
Direct Labor cost $ 3.00
Direct Material Cost $ 5.00
Allocated Overhead cost $ 7.32
Unit Cost $ 15.32
Selling Price $ 21.00
Gross Margin $ 5.68
Gross Margin % 27%

Gross Margin by traditional method

Geoffrey Doll
Direct Labor cost $ 3.00
Direct Material Cost $ 5.00
Manufacturing Overhead Cost $ 11.19
Unit Cost $ 19.19
Selling Price $ 21.00
Gross Margin $ 1.81
Gross Margin % 9%

Comparitive Analysis of Gross Margin

Geoffrey Doll
Traditional (Single Allocation Base) 9%
Activity Based Costing (ABC) 27%
Analysis Traditional costing resulted in
over costing of Geoffrey Dolls
Total Cost Activity Levels Rate per unit of Cost drivers
$ 112,000 11,200 $ 10.00
$ 40,000 27,000 $ 1.48
$ 13,333 161 $ 82.81
$ 63,000 161 $ 391.30
$ 53,000 350 $ 151.43

Geoffrey Doll Activity Geoffey Cost # 106 Activity

3750 $ 37,500.00 1200
7500 $ 11,111.11 4000
10 $ 828.14 100
10 $ 3,913.04 100
10 $ 1,514.29 220
$ 54,866.58
$ 7.32

#106 Doll Cradles

$ 3.75
$ 6.00
$ 24.66
$ 34.41
$ 36.00
$ 1.59
4%
$ 7.50
$ 12.00
$ 4.14
$ 23.64
$ 30.00
$ 6.36
21%

#106 Doll Cradles

$ 3.75
$ 6.00
$ 13.99
$ 23.74
$ 36.00
$ 12.26
34%
$ 7.50
$ 12.00
$ 4.20
$ 23.70
$ 30.00
$ 6.30
21%

#106 Doll Cradles

34% 21%
4% 21%
Traditional costing resulted No significant difference
in under costing of #106 between the two costing
Dolls because they are based on
the same allocation base.
#106 Cost Cradles Activity Cradles Cost
$ 12,000.00 0 $ -
$ 5,925.93 3,000 $ 4,444.44
$ 8,281.37 0 $ -
$ 39,130.43 1 $ 391.30
$ 33,314.29 50 $ 7,571.43
$ 98,652.01 $ 12,407.18
$ 24.66 $ 4.14