Question

Activity-Based Budget
Macon Industries has the following budget information available for February:

Units manufactured	35,000
Factory administration	$50,000
Assembly	0.5	hour per unit X $9
Direct materials	2	pounds per unit X $2
Inspection	$100	per batch of 1,000 units
Manufacturing overhead	$4	per unit
Product development	$20,000
Setup cost	$11	per batch of 1,000 units

Use activity based costing to prepare a manufacturing cost budget for February. Clearly distinguish between unit, batch, and facility-level costs.

Macon Industries Activity-Based Manufacturing Cost Budget For the Month of February
Unit-level costs:
Direct materials	$Answer
Assembly	Answer
AnswerFactory administrationInspectionManufacturing overheadProduct development	Answer	Answer
Batch-level costs:
Setup	Answer
AnswerFactory administrationInspectionManufacturing overheadProduct development	Answer	Answer
Product-level costs:
AnswerFactory administrationInspectionManufacturing overheadProduct development		Answer
Facility-level costs:
AnswerFactory administrationInspectionManufacturing overheadProduct development		Answer
Budgeted manufacturing costs		$Answer

Answer 1

Solution

Macon Industries

Manufacturing Cost Budget for February using activity based costing:

Macon Industries
Activity-Based Manufacturing Cost Budget
For the Month of February
Unit-Level Costs:
Direct Materials	$140,000
Assembly	$157,500
Manufacturing Overhead	$140,000	$437,500
Batch-Level Costs:
Setup	$385
Inspection	$3,500	$3,885
Product-Level Costs:
Product Development		$20,000
Facility-Level Costs:
Factory Administration		$50,000
Budgeted Manufacturing Costs		$511,385

Computations:

1. Direct materials cost –

= 35,000 units x 2 pounds/unit x $2 = $140,000

2. Assembly –

= 35,000 x 0.5 hours/unit x $9 = $157,500

3. Manufacturing overhead –

= 35,000 units x $4 per unit = $140,000

4. Setup cost –

= (35,000/1,000) = 35 batches per x $11 per batch = $385

5. Inspection costs –

= (35,000/1,000) x $100 = $3,500