LAB #4 CHAPTER 4 Activity Based Costing OBJECTIVE: Assign indirect costs to prod
ID: 2342444 • Letter: L
Question
LAB #4 CHAPTER 4 Activity Based Costing OBJECTIVE: Assign indirect costs to products using activity based costing and compare results to indirect costs assigned to products using traditional volume-based costing Valley View Trailmasters makes two types of tents for mountain camping, the Explorer and the Climber. Data concerning the two product lines is presented in the table below: EXPLORER CLIMBER Sales price per unit $390 $615 Direct materials per unit $92 $115 Direct labor per unit $51 $75 Estimated annual production 4,000 units 9,000 units The company has always employed a tradition costing system in which manufacturing overhead is applied to units based on direct labor hours. Estimated data concerning manufacturing overhead and direct labor hours for the upcoming year appear below: Estimated total manufacturing overhead $484,746 Estimated total machine hours 1,000 The company is considering replacing its traditional costing system with an activity based costing system that would assign its indirect product costs to four activity cost pools. Information about the amount assigned to these cost pools, the identified cost driver for each and usage of the cost drivers by the two product lines is presented in the following table: ACTIVITY TOTAL COST COST DRIVER TOTAL EXPLORER CLIMBER Machine maintenance $78,840 Machine hours 1,000 350 650 Batch setups $136,364 Setups 146 60 86 Quality control $163,020 Inspections 1,650 975 675 Technical support $106,522 Technical support calls 964 352 612 Total manufacturing overhead cost $484,746 INSTRUCTIONS: Use Excel formulas to calculate the following amounts in the spaces provided on your template. 1. Calculate the predetermined overhead rate using the traditional volume-based costing system. 2. Calculate the total amount of overhead cost that would be assigned to each product line under the company’s traditional costing system.3. Calculate the gross margin per unit for each product line using traditional volume-based costing.
4. Calculate the activity rate for each cost pool using activity-based costing.
5. Calculate the total amount of overhead cost that would be assigned to each product line using activity-based costing. 6. Calculate the gross margin per unit for each product line under the proposed activity based costing system.
PLEASE PLEASE PLEASE POST ANSWER EXPLAINATIONS IN MICROSOFT EXCEL FORMULAS Sales prie per it Quality control $106.522 Extimatod alproductios Evtimatod dotal mafactering overad Extireated total machine bours: Is 484.746 ing traditocal Cakelate te total aret ofoverbead tat woeld be awigedt ning traditiotal volume-based co. cach prodect line EXPLORER CLIMBER 3 Cakelatk tbe zro argis perit r each prodect li ig traditional voleme-baed tirg 4 Calculatc the activity rat·for each cost pool "ing activity-based coniu 5 Cakelatk te total at ofoverbead tat wold be aied to cach prodect lie evirg activity baed otirg EXPLOR CLIMBER 6. Calculat·ths gross margin per unithr each product lies using acti, ity-based coding CLIMBER
Explanation / Answer
Traditional costing
Here by mistake direct labor given in answer, but as per your data provided, actually overhead allocated based on machine hour. We can consider overhead allocated based on machine hours
Estimated total manufacturing overhead
484746
Estimated total machine hours
1000
Predetermined overhead rate (Estimated total manufacturing overhead / Estimated total machine hours )
484.746
Product
Overhead cost per unit
Remarks
Explorer
42.42
484.746*350/4000
Climber
35.01
484.746*650/9000
Explorer
Climber
Direct material cost per unit
92
115
Direct labor cost per unit
51
75
Overhead cost per unit
42.42
35.01
Full product cost per unit
185.42
225.01
Selling price per unit
390
615
Gross margin per unit (selling price per unit - full product cost per unit)
204.58
389.99
ABC costing
ACTIVITY
TOTAL COST
Total COST DRIVER
Cost driver rate (TOTAL COST / total COST DRIVER)
Machine maintenance
78840
1000
78.84
Batch setups
136364
146
934
Quality control
163020
1650
98.8
Technical support
106522
964
110.5
Explorer
ACTIVITY
Cost driver rate
Number of activity
Overhead allocated (cost driver rate * number of activity)
Machine maintenance
78.84
350
27594
Batch setups
934
60
56040
Quality control
98.8
975
96330
Technical support
110.5
352
38896
Total overhead allocated
218860
Overhead cost per unit (total overhead allocated / 4000 unit produced)
54.72
Climber
ACTIVITY
Cost driver rate
Number of activity
Overhead allocated (cost driver rate * number of activity)
Machine maintenance
78.84
650
51246
Batch setups
934
86
80324
Quality control
98.8
675
66690
Technical support
110.5
612
67626
Total overhead allocated
265886
Overhead cost per unit (total overhead allocated / 9000 unit produced)
29.54
Explorer
Climber
Direct material cost per unit
92
115
Direct labor cost per unit
51
75
Overhead cost per unit
54.72
29.54
Full product cost per unit
197.72
219.54
Selling price per unit
390
615
Gross margin per unit (selling price per unit - full product cost per unit)
192.29
395.46
Traditional costing
Here by mistake direct labor given in answer, but as per your data provided, actually overhead allocated based on machine hour. We can consider overhead allocated based on machine hours
Estimated total manufacturing overhead
484746
Estimated total machine hours
1000
Predetermined overhead rate (Estimated total manufacturing overhead / Estimated total machine hours )
484.746
Product
Overhead cost per unit
Remarks
Explorer
42.42
484.746*350/4000
Climber
35.01
484.746*650/9000
Explorer
Climber
Direct material cost per unit
92
115
Direct labor cost per unit
51
75
Overhead cost per unit
42.42
35.01
Full product cost per unit
185.42
225.01
Selling price per unit
390
615
Gross margin per unit (selling price per unit - full product cost per unit)
204.58
389.99
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