The questions are to be answered based on the information of data below an dplea

Question

The questions are to be answered based on the information of data below an dplease help to answer the question in detail.

The questions to concentrate on are as follows:

There are various costing methods available for companies to implement. As a company grows, it may become beneficial to consider an alternate costing method.

A. Identify an alternative costing method that could benefit this company, and describe the main characteristics of that method.

B. What should a company look for when trying to determine whether they should adopt such a system?

C. Should the company adopt this alternative costing method? Defend your response.

This is scenario :

The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed costs for administration of $79,525. The per-unit costs of each umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

The data that is supposed to be used to answer the questions mentioned on top is right below. Please have a look at the calculations.

Cost Information From Instructions Stick Collapsible Units Sold 60,000 3,000 Selling Price $12.50 $14.00 Direct Material Cost Per Unit $3.00 $3.10 Direct Labor Cost Per Hour $7.50 $8.00 Variable MO $0.40 $0.40 Variable Selling Costs $1.10 $1.10 Labor Hours Per Unit 0.2 0.2 Sales Orders 120 1 Purchase Orders 50 3 Production Runs 45 6 Material Moves 86 10 Machine Setups 130 6 Machine Hours 525 32 Inspections 200 10 Shipments 60 3 Activity Information from Instructions Activity Activity Cost Activity Cost Driver Order Processing $35,000 Number of Sales Orders Purchasing $36,000 Number of Purchase Orders Material Handing $28,000 Material Moves Machine Setup $14,000 Machine Setups Production $99,000 Production Runs Assembly $80,000 Machine Hours Inspecting $11,000 Number of Inspections Shipping $7,500 Number of Shipments Requirement 1 Activity Total Costs Quantity of Cost Allocation Base Overhead Allocation Rate Order Processing $35,000 121 $289 Purchasing $36,000 53 $679 Material Handing $28,000 96 $292 Machine Setup $14,000 136 $103 Production $99,000 51 $1,941 Assembly $80,000 557 $144 Inspecting $11,000 210 $52 Shipping $7,500 63 $119 Requirement 2 Traditional Costing Stick Umbrella Collapsible Umbrella Total Revenues $750,000 $42,000 $792,000 Direct Materials $180,000 $9,300 $189,300 Direct Labor $90,000 $4,800 $94,800 Variable Overhead $24,000 $1,200 $25,200 Variable Selling Costs $66,000 $3,300 $69,300 Allocated Fixed Overhead $295,714 $14,786 $310,500 Total Costs $655,714 $3,386 $689,100 Operating Income $94,286 $8,614 $102,900 Operating Income % 13% 21% $13 Per Unit Operating Income $1.57 $2.87 Requirement 3 Activity-Based Costing Stick Umbrella Collapsible Umbrella Total Revenues $750,000 $42,000 $792,000 Direct Materials $180,000 $9,300 $189,300 Direct Labor $90,000 $4,800 $94,800 Variable Overhead $24,000 $1,200 $25,200 Variable Selling Costs $66,000 $3,300 $69,300 Order Processing Costs $34,711 $289 $35,000 Purchasing Costs $33,963 $2,038 $36,000 Material Handing Costs $25,084 $2,917 $28,000 Machine Setup Costs $13,382 $618 $14,000 Production Costs $87,353 $11,647 $99,000 Assembly Costs $75,405 $4,595 $80,000 Inspecting Costs $10,476 $524 $11,000 Shipping Costs $7,143 $357 $7,500 Total Costs $647,516 $41,584 $689,100 Operating Income $102,484 $416 $102,900 Operating Income % 14% 1% 12.99 Per Unit Operating Income $1.71 $0.14 Requirement 4 Costs per Unit Stick Umbrella Collapsible Umbrella Traditional $10.93 $11.13 ABC $10.79 $13.86 Difference $0.14 $($2.73) Requirement 5 Calculation of Labour Hours (note): 1) Labor hour per unit of stick umbrella is 0.2 and it is the same for the collapsible umbrella. While the units sold for the stick umbrella are 60,000 and for the collapsible umbrella are 3,000. Then multiply the labor hour per unit with the units sold, then the total amount for the stick umbrella is $12,000 and for the collapsible umbrella is $600. Adding these both amounts will total $12,600

Explanation / Answer

A)

Overhead allocation methods:

i) Traditional methods:

1) Predetermined overhead rate based on labor hours

2) Predetermined overhead rate based on machine hours

ii) Activity based costing

B)

Proper allocation system should be allocate overhead costs accurately between different departments. Usually every department manager wants to reduce their department cost and cost per unit. They wants to select system which reduces the cost of their department.

C)

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