1. **Problem Statement:** Determine the cost per unit of products Kal and Bis using two methods: - Conventional costing (using Direct Labor Hours (DLH) to allocate Factory Overhead (FOH)) - Activity-Based Costing (ABC) 2. **Given Data:** - Units produced: Kal = 20,000, Bis = 40,000 - Direct Material cost: Kal = 100,000, Bis = 200,000 - Direct Labor cost: Kal = 200,000, Bis = 400,000 - Total FOH = 10,000,000 - Activity drivers and their totals: - Machine set up: 1,000,000 (2,000 setups total) - Materials handling: 2,000,000 (1,000 moves total) - Electricity: 3,000,000 (6,000 kWh total) - Inspection: 4,000,000 (2,000 DLH total) - Activity driver usage for Kal and Bis: - Setups: Kal=200, Bis=400 - Moves: Kal=100, Bis=200 - kWh: Kal=500, Bis=1,000 - DLH: Kal=400, Bis=200 --- ### 1. Conventional Costing (using DLH to allocate FOH) 3. **Formula:** $$\text{FOH rate per DLH} = \frac{\text{Total FOH}}{\text{Total DLH}}$$ 4. Calculate FOH rate: $$\text{FOH rate} = \frac{10,000,000}{2,000} = 5,000 \text{ per DLH}$$ 5. Allocate FOH to Kal and Bis: - Kal FOH = $5,000 \times 400 = 2,000,000$ - Bis FOH = $5,000 \times 200 = 1,000,000$ 6. Calculate total cost for Kal and Bis: - Kal total cost = Direct Material + Direct Labor + FOH = $100,000 + 200,000 + 2,000,000 = 2,300,000$ - Bis total cost = $200,000 + 400,000 + 1,000,000 = 1,600,000$ 7. Cost per unit: - Kal: $\frac{2,300,000}{20,000} = 115$ - Bis: $\frac{1,600,000}{40,000} = 40$ --- ### 2. Activity-Based Costing (ABC) 8. **Formula:** $$\text{Cost allocated} = \text{Activity cost} \times \frac{\text{Product activity driver usage}}{\text{Total activity driver usage}}$$ 9. Allocate FOH by activity: - Machine set up: - Kal: $1,000,000 \times \frac{200}{2,000} = 100,000$ - Bis: $1,000,000 \times \frac{400}{2,000} = 200,000$ - Materials handling: - Kal: $2,000,000 \times \frac{100}{1,000} = 200,000$ - Bis: $2,000,000 \times \frac{200}{1,000} = 400,000$ - Electricity: - Kal: $3,000,000 \times \frac{500}{6,000} = 250,000$ - Bis: $3,000,000 \times \frac{1,000}{6,000} = 500,000$ - Inspection: - Kal: $4,000,000 \times \frac{400}{2,000} = 800,000$ - Bis: $4,000,000 \times \frac{200}{2,000} = 400,000$ 10. Total FOH allocated: - Kal: $100,000 + 200,000 + 250,000 + 800,000 = 1,350,000$ - Bis: $200,000 + 400,000 + 500,000 + 400,000 = 1,500,000$ 11. Calculate total cost: - Kal total cost = $100,000 + 200,000 + 1,350,000 = 1,650,000$ - Bis total cost = $200,000 + 400,000 + 1,500,000 = 2,100,000$ 12. Cost per unit: - Kal: $\frac{1,650,000}{20,000} = 82.5$ - Bis: $\frac{2,100,000}{40,000} = 52.5$ --- **Final answers:** - Conventional costing cost per unit: Kal = $115$, Bis = $40$ - ABC costing cost per unit: Kal = $82.5$, Bis = $52.5$