PROBLEM 6-12. Activity-Based Costing [LO 5] The Cheesecake Shoppe is a national
ID: 2418069 • Letter: P
Question
PROBLEM 6-12. Activity-Based Costing [LO 5] The Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake.It makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products.The following data relate to its strawberry cheesecake and the ABC cost pools:
Strawberry Cheesecake:
Annual production 19,500 units
Direct materials per unit $10
Direct labor per unit $2
Cost Pool Cost Cost Driver
Materials ordering $ 72,000 Number of purchase orders
Materials inspection 75,000 Number of receiving reports
Equipment setup 105,000 Number of setups
Quality control 69,000 Number of inspections
Other 100,000 Direct labor cost
Total manufacturing overhead $421,000
Annual activity information related to cost drivers:
Cost Pool All Products Strawberry Cheesecake
Materials ordering 8,000 orders 100
Materials inspection 375 receiving reports 60
Equipment setup 3,000 setups 30
Quality control 3,000 inspections 150
Other $2,000,000 direct labor $39,000
Required
a. Calculate the overhead rate per unit of activity for each of the ve cost pools.
b. Calculate the total overhead assigned to the production of the strawberry cheesecake.
c. Calculate the overhead cost per unit for the strawberry cheesecake.Round to three decimal places.
d. Calculate the total unit cost for the strawberry cheesecake. Round to three decimal places.
e. Suppose that the Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake.Discuss the difference in cost allocations between the traditional method and the activity-based costing approach. Round to three decimal places.
Explanation / Answer
a and b) Cost Pool Cost Cost driver No of Activity Cost per Activity Strawberry Cheese cake activity Cost of strawberry cheesecake Materials Ordering 72,000.00 No of repurchase orders 8,000.00 9.00 100.00 900.00 Material Inspection 75,000.00 No of receiving reports 375.00 200.00 60.00 12,000.00 Equipment Set up 105,000.00 No of setups 3,000.00 35.00 30.00 1,050.00 Quality Control 69,000.00 No of inspections 3,000.00 23.00 150.00 3,450.00 Other 100,000.00 Direct Labour Cost 2,000,000.00 0.05 39,000.00 1,950.00 421,000.00 19,350.00 c) Overhead Cost of strawberry cheesecake 19,350.00 No of units 19,500.00 Cost per unit 0.99 d) Statement showing computations Particulars Amount DM per unit 10.00 DL per unit 2.00 Overhead Cost per unit 0.99 Total Cost per unit 12.99 e) Total Manu O/H 421,000.00 Total Direct Labour 2,000,000.00 O/H per Dl hour 0.2105 Total O/H Allocated to StrawberryCheese cake = .2105 *39000 8,209.50
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