sparkle company makes three types of sunglasses stars Greek and fashion sparkle
ID: 2372763 • Letter: S
Question
sparkle company makes three types of sunglasses stars Greek and fashion sparkle presently applies overhead using a preditarmain overhead rate based on direct labor hours a group of comapny employees recooanded that sparkle switch to activity based costing and identified for yers 2 for each activity center
activity cost drive base est cost est cost drive units
production setup number of production run $80000 200 runs
order processing nu of order 160000 200 orders
material handling nu of pound material 40000 8000 pounds
equip depriciation nu of machine hours 140000 100000 hours
quality management nu of inspection 100000 40 inspection
packing and shipping nu of units shipped 80000 20000 units
$ 600000
in addition manaegment estimated 2000 direct labor hours for year 2 and the activities occured in feb of year 2
nu of units produced 1000 500 400
direct material costs $ 4000 2500 2000
direct labor hours 100 120 110
nu of orderd 8 8 4
number of production run 4 8 16
nu of pound material 400 200 200
nu of machine hours 500 300 300
nu of inspection 2 2 2
nu of units shipped 1000 500 300
1compute the predetairmian overhead for year 2 for each cost drive recommanded by employees also compute a predetairmed overhead rate using direct labor hour as the allocation base
2compute the production costs for each product for feb using direct labor hours and preditairmind as a llocation base and the predetairmained rate in requirment a2
3compute the production cost for feb using cost drivers recommended by employees and predetarmaind rate computed in a1 do not assume the that total overhaid applied to products in feb will be the same for ABC as it was for the labor hours based allocation
4how you account for the discrepancy between the product costing using direct labor hour as allocation base and the product cost using ABC
Explanation / Answer
a. CostDriver Units Bases Driver Rates per 200 orders order 200 production runs production run 8,000 pounds pound 10,000 machine hours machine hour 40 inspections inspection 20,000 units unit 2000 hours $20 per hour Geeks Fashions 500 400 $2,500 $2,000 120 110 8 4 8 16 200 200 300 300 2 2 500 300 ============================================================================================================================================================================================= analysis per labor hour Geeks Fashions Total Geeks Fashions Total ABC 4.43 McGraw-Hill/Irwin 2009 Activity/Resource Cost-Driver Base Aerolight Production Number of units 1,000 ============================================================================================================================================================================================= 1. Machine setup Production runs 11 ============================================================================================================================================================================================= 2. Sales-order processing Orders 400 ============================================================================================================================================================================================= 3. Warehousing Units held in inventory 200 ============================================================================================================================================================================================= 4. Energy & machine maintenance Machine hours 10,000 ============================================================================================================================================================================================= 5. Shipping Units shipped 1,000 Activity ============================================================================================================================================================================================= Activity Cost-Driver Base Cost ============================================================================================================================================================================================= 1. Machine setup Production runs $26,000 ============================================================================================================================================================================================= 2. Sales-order processing Orders 64,000 ============================================================================================================================================================================================= 3. Warehousing Units held in inventory 80,000 ============================================================================================================================================================================================= 4. Energy & machine maintenance Machine hours 42,000 ============================================================================================================================================================================================= 5. Shipping Units shipped 36,000 ============================================================================================================================================================================================= Total overhead $248,000 Income Statement Aerolight Summit Sales $380,000 $560,000 Direct material costs 150,000 240,000 ============================================================================================================================================================================================= Direct labor costs 14,400 24,000 ============================================================================================================================================================================================= Variable overhead Machine setup Sales-order processing Warehousing Energy & machine maintenance ============================================================================================================================================================================================= Shipping Contribution Margin Fixed overhead Plant administration ============================================================================================================================================================================================= Other fixed overhead Gross profit Summit Spinner 2,000 5,000 17 24 600 600 200 400 12,000 20,000 4,000 10,000 ============================================================================================================================================================================================= Cost-Driver Cost-Driver Activity Rates per production run order unit in inventory machine hour unit shipped Spinner ============================================================================================================================================================================================= Total $475,000 200,000 54,000 88,000 140,000 4.49 ============================================================================================================================================================================================= Typical Typical Cost Driver Activity Activity Activity/Resource Base Cost Volume ============================================================================================================================================================================================= 1.1 Direct material for product A produced units $50,000 1,000,000 ============================================================================================================================================================================================= 1.2 Direct labor for product ADL hours worked 20,000 2,000 ============================================================================================================================================================================================= 1.3 Direct material for product B produced units 80,000 800,000 ============================================================================================================================================================================================= 1.4 Direct labor for product BDL hours worked 40,000 2,000======================================================================================================================================================================================== 2.1 Quality control batches 30,000 100 ============================================================================================================================================================================================= 3.1 Product level advertising promotions 100,000 100 ============================================================================================================================================================================================= 3.2 Product level records products 20,000
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