You are a manager at PopUp Company, who manufactures toaster ovens. Your company
ID: 2341155 • Letter: Y
Question
You are a manager at PopUp Company, who manufactures toaster ovens. Your company produces two types of toaster ovens: basic and deluxe. PopUp Company currently uses a traditional unit-based costing system, however, you feel strongly the company should switch to an activity-based costing system. You believe this change would provide you more accurate costing information, which would allow for better strategic decision making.
Required:
1.Compare the traditional and activity-based cost management systems. Give advantages and disadvantages of each and discuss how these concepts will relate to PopUp Company.
2.
PopUp Company produces two types of toasters, basic and deluxe. For the current period, the company reports the following data: Basic Toaster Deluxe Toaster Volume 20,000 units 5,000 units Machine Hours 1,000 2,400 Batches 315 125 Engineering Modifications 20 50 Prime Costs $20,000 $30,000 Market Price $25 per unit $60 per unit Additional Information Follows Costs Driver Engineering Support $15,900 Modifications Electricity 25,000 Machine Hours Setup costs 33,900 Batches 1) Compute the manufacturing cost per unit of each toaster using the current unit-based approach. Under this system costs are assigned to the toasters on the basis of machine hours. 2) Compute the manufacturing cost per unit of each toaster using an activy-based costing approachExplanation / Answer
1 Total manufacturing overheads 74800 Total machine hours 3400 Predetermined overhead rate 22 Basic toaster Deluxe toaster Predetermined overhead rate 22 22 Mahine hours 1000 2400 Manufacturing overheads 22000 52800 Number of units 20000 5000 Manufacturing overhead per unit 1.1 10.56 2 Budgted amount Activity base Amount per activity Engineering support 15900 70 227.14 Electricity 25000 3400 7.35 Setups costs 33900 440 77.05 Total 74800 Basic toaster Per unit Total cost Engineering support 20 227.14 4543 Electricity 1000 7.35 7353 Setups costs 315 77.05 24269 Total cost 36165 Number of units 20000 Manufacturing overhead per unit 1.81 Deluxe Per unit Total cost Engineering support 50 227.14 11357 Electricity 2400 7.35 17647 Setups costs 125 77.05 9631 Total cost 38635 Number of units 5000 Manufacturing overhead per unit 7.73
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