Southwest Auto Parts has a seat manufacturing department that uses activity-base
ID: 2373800 • Letter: S
Question
Southwest Auto Parts has a seat manufacturing department that uses activity-based costing for which the following information is available. Activity Allocation Base Cost Allocation Rate Purchasing # of Purchase Orders $50 per Purchase Order Assembling # of Parts $.50 per Part Packaging # of Finished Seats $1 per Finished Seat Each auto seat has 20 parts. Direct materials cost per seat is $11. Southwest has just been asked to bid on 50,000 seats that would be used on the Lexus RX300. Southwest will use a total of 200 purchase orders if Lexus accepts its bid. 1. In good order and form, compute the total cost that Southwest will incur to produce the number seats required by the bid. 2. Compute the average cost per seat. 3. Suppose that instead of an ABC system, Southwest had a traditional product costing system that allocates all costs other than direct materials at the rate of $65 per direct labor hour. The seat order will require 10,000 direct labor hours. What price will Southwest bid using this systemExplanation / Answer
1. In good order and form, compute the total cost that Southwest will incur to produce the number seats required by the bid.
Total cost =11*50000+ 50*200 + 0.50*20*50000 + 1*50000 = $1,110,000
2. Compute the average cost per seat.
Avg Cost per unit = 1,110,000/50,000 = $22.20
3. Suppose that instead of an ABC system, Southwest had a traditional product costing system that allocates all costs other than direct materials at the rate of $65 per direct labor hour. The seat order will require 10,000 direct labor hours. What price will Southwest bid using this system%u2019s total cost?
Total Cost = 11*50,000 + 65*10000 = $1,200,000
Avg Cost per unit 1,200,000/50,000 = $24
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