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Allocation basis


Production costs and allocation of costs have an implication on cost per unit.  Two alternatives methods of production are being considered: Allocation basis using factory space and Allocation basis using labor.


A. Allocation basis using factory space
The first step is to determine the fixed cost per unit of Android01. Total fixed cost is $5,000,000.  Android01 allocation is 30%. To get the fixed cost for Android01, total fixed cost is ($5,000,000) has been multiplied by 30%.  The total fixed cost for Android01 is $1,500,000.00.  The total fixed cost for Android01 is divided by the number of units (300) to arrive at fixed cost per unit of Android01 ($5000).
The second step is to calculate the variable cost of Android01.  Total variable cost of both Processor01 and Android01 is $20,000,000. The total factory space is 100000 sq ft. Android01 utilizes 30000 sq ft. hence; Android01 has been allocated 30% of the factory space (100000/30000). Total variable cost of Android01 ($6,000,000) is calculated by multiplying Total variable cost ($20,000,000) by 30%.  To arrive at variable cost per unit, $6,000,000 is divided by the number of android01 units (300). Therefore, the variable cost per unit is $20,000
The third step is to calculate the total cost per unit. The fixed cost per unit of Android01 ($5000) calculated in the first step is added to variable cost per unit ($20,000). Total cost per unit of Android01 is $25000. The component cost is $25000.  By adding the two costs, we arrive at total cost per unit of $50000.
 B. Allocation basis using labor
Here, the first step in Part A above is repeated. However, Android allocation is 40%. Hence, the fixed cost for Android01 is $6,666.67.  Based on labor, Android01 has been allocated 40% (200/80). Hence the variable cost is calculated by multiplying $ $20,000,000 by 40% to get $8,000,000.  $8,000,000 is the variable cost for Android01.  To get the amount of variable cost per unit, $8,000,000 is divided by number of units (300).  Variable cost per unit amounts to $26,666.67.
The third step is to calculate the total cost per unit. The fixed cost per unit of Android01 ($6,666.67) calculated in the first step is added to variable cost per unit ($26,666.67). Total cost per unit of Android01 is $33,333.34. The component cost is $25000.  By adding the two costs, we arrive at total cost per unit of $58,333.34. The cost should be allocated on the basis of space.
Question 2
Activity–based costing is an alternate method of assigning costs. Component assembly is the major activity for the production of both Processor01 and Android01. There are a total of 125,000 assemblies per year for the production of 300 units of Android01 and 500 units of Processor01 at a total cost of $25 million. The remaining cost for the production of Android01 is for components, at $25,000 per unit.
To calculate Android01's cost per unit using activity-based costing, total assembly cost is divided by the number of total assemblies then multiplied by the number of Android01 assemblies. The amount is then added to the remaining cost for the production of Android01. Cost per unit using activity-based costing is $61000
Question 3
Total fixed cost provided is $4,500,000.  Allocation to Android is 30%. Multiplying $4,500,000 by 30% gives the amount of fixed cost allocated to Android, equal to $1,350,000. To get fixed cost per unit, total fixed cost allocated to Android ($1,350,000) is divided by the number of units (300). This amounts to $4500.  Variable cost per Android unit has been provided ($48000).  To arrive at Total cost per unit ($52500), the fixed cost per unit ($4500) is added to the variable cost per unit ($48000).  The product will be sold at a markup of 30%. Hence, the price of the product is 130% of the total cost.
Thus: 130%*52500= $68250


Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in legitimate custom writing services Texas. If you need a similar paper you can place your order from research paper writing service Florida services.

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