Please provide soluation and calculation to these questions. ASSIGNMENT 3 Case:

Question

Please provide soluation and calculation to these questions.

ASSIGNMENT 3 Case: Traditional and Activity-Based Costing (ABC) Systems Traditionally, job-order and process costing systems allocate indirect (support) costs in two stages: 1. To operating departments (first stage allocation) in proportion to the direct labor hours, or direct machine hours used by those departments. 2. The costs of the operating department are subsequently allocated to products (second Such crude methods of allocating support costs are likely to distort product costing. Traditional cost systems often under-estimate the cost of resources used in more complex products and over-estimate the costs of indirect resources required for standard products. Activity-based cost (ABC) systems have been developed to reduce such cost distortions This case describes a transition by The Cooper Pen Company from a traditional costing system to Activity Based Costing (ABC) Traditional Costing Systems: The Cooper Pen Company Cooper Pen, is a low-cost producer of blue pens and black pens. Recently, Cooper Pen introduced red and purple pens, using same basic production technology, combined with more complex processes, selling at prices respectively 3% and 10% higher than black and blue According to cost estimates based on traditional costing, overall profitability for all pens decreased, but red and purple pens recorded higher profit margins than black and blue Decision: Should Cooper Pen change its product mix so as to de-emphasize blue and black and increase production of new specialty colored pens? Table 1: Profitability by Product (Traditional Costing) ue ac ota Units Price Sales 50,00040,000 9,000 1,000 100,000 S 4.50S4.50S4.65 S 4.95 Direct Materials75,00060,000 14,040 5,400 Indirect Costs90,00072,000 16,200 Tot. Mfg. Cost 195,000 156,000 35,640 $225,000 $180,000S41,850$4,950 S451,800 150,690 60,000 180,000 390,690 1,650 600 1,800 4,050 900 Direct Labor30,000 24,000 Gross Margin S 30,000 S24,000S 6,210 S S 61,110 GM GM. % of Sales 13.3%| 13.3% 14.8% 18.2% 13.5%

Explanation / Answer

1 Compute the ACDR Activities Activity Cost Activity Cost Driver Driver Quantity ACDR Handle Production Runs $66,000 Number of Production Runs 200 $330.00 (66000/200) Set up Machines $33,600 Number of setup hours 800 $42.00 (33600/800) Support Products $14,400 Number of Products 4 $3,600.00 (14400/4) Run Machines $42,000 Number of Machine Hours 10000 $4.20 (42000/10000) $156,000 2 Activity cost assigned from activity cost pools to cost objects Blue Black Red Purple Total Handle Production Runs $23,100 $21,450 $16,500 $4,950 $66,000 Set up Machines $11,760 $6,552 $11,760 $3,528 $33,600 Support Products $3,600 $3,600 $3,600 $3,600 $14,400 Run Machines $21,000 $16,800 $3,780 $420 $42,000 $59,460 $48,402 $35,640 $12,498 $156,000 Calculation Blue Black Red Purple Total Number of Production run(1) 70 65 50 15 ACDR (2) $330 $330 $330 $330 Handle Production Runs (1x2) $23,100 $21,450 $16,500 $4,950 $66,000 Number of Setup hours (3) 280 156 280 84 ACDR (4) $42 $42 $42 $42 Set up Machines (3x4) $11,760 $6,552 $11,760 $3,528 $33,600 Number of Products (5) 1 1 1 1 ACDR (6) $3,600 $3,600 $3,600 $3,600 Support Products (5x6) $3,600 $3,600 $3,600 $3,600 $14,400 Number of Machine Hours (7) 5000 4000 900 100 ACDR (8) $4.20 $4.20 $4.20 $4.20 Run Machines $21,000 $16,800 $3,780 $420 $42,000 $59,460 $48,402 $35,640 $12,498 $156,000 3 Cooper's ABC Profitabilityby Product Blue Black Red Purple Total Sales $225,000 $180,000 $41,850 $4,950 $451,800 Material $75,000 $60,000 $14,040 $1,650 $150,690 Labor $30,000 $24,000 $5,400 $600 $60,000 40% fringe on DL $12,000 $9,600 $2,160 $240 $24,000 Support $59,460 $48,402 $35,640 $12,498 $156,000 Total Manufacturing expenses $176,460 $142,002 $57,240 $14,988 $390,690 Gross Margin $48,540 $37,998 ($15,390) ($10,038) $61,110 G.M. % of sales 22% 21% -37% -203% 13.5% 4 As per traditional profitability report, all the product are profitable whereas as per ABC profitability report Red and Purple pens are operating at loss. ABC profitability report is more accruate as it allocate cost based on activity cost drivers used by products. Dear student, as per chegg policy, we as an expert are allowed to do only four subparts of any question.

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