Adirondack Corporation is estimating activity costs associated with producing wi

Question

Adirondack Corporation is estimating activity costs associated with producing wireless mice and tethered mice. The indirect labor can be traced to three separate activity pools. The budgeted activity cost and activity base information, along with the estimated activity-base information, is provided below.

Activity
Cost Activity Base
Purchasing $ 370,000 Number of purchase orders
Materials handling 500,000 Number of moves
Production 1,500,000 Machine hours
TOTAL $2,370,000

#Purchase Orders # of Moves MachineHours NumberofUnits
Wireless mice 4,000 1,400 2,000 2,000
Tethered mice 4,000 800 8,000 4,000
TOTALS 8,000 2,200 10,000 6,000

A) Determine the Activity rate for each activity cost pool.

B) Complete the following chart to determine the total indirect labor allocated to each UNIT under the ABC model.

Wired Mice
Activity Activity-Base Usage x Activity Rate = Activity Cost

Tethered Mice
Activity Activity-Base Usage x Activity Rate = Activity Cost

C) If traditional costing had been used and number of units were the allocation base, what would the single allocation rate be? (2 points)


D) Given your answers in parts (B) and (C), which method would you suggest to management, ABC or a single allocation rate? Please explain your decision.

Explanation / Answer

a) Purchasing = 370000/8000 = 46.25/no of purchase order, Materials handling = 500000/2200 = 227.27/no of moves, Production = 1500000/10000 = 150/machine hour, b) Total Wireless mice cost = 46.25*4000 + 227.27*1400 + 150*2000 = 803178, per unit = 803178/2000 = 401.59/unit total tethered mice cost = 46.25*4000 + 227.27*800 + 150*8000 = 1566816, per unit = 1566816/4000 = 391.7/unit c) if traditional costing system has been used then single allocation rate should be = 2370000/6000 = 395 d) ABC is a better option because it is considerind different cost drive for all different fields while in traditional costing only number of units is considered

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.