Tinker, Inc. produces two different products, Product A and Product B. Tinker us
ID: 2456097 • Letter: T
Question
Tinker, Inc. produces two different products, Product A and Product B. Tinker uses a traditional volume-based costing system in which direct labor hours are the allocation base. Tinker is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,220,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.44/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
Tinker, Inc. produces two different products, Product A and Product B. Tinker uses a traditional volume-based costing system in which direct labor hours are the allocation base. Tinker is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,220,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.44/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:
Explanation / Answer
a) =2.44*100,000= $244,000
b)=2.44*400,000= $976,00
c)ABC Costing for A:
Design: 700*200= $140,000
Production: 1*100,000=$100,000
Inspection: 600*400=240,000
Total cost= 140,000+100,000+240,000= $480,000
D)ABC Costing for B:
Design: 700*400= $280,000
Production: 1*400,000=$400,000
Inspection: 600*100=60,000
Total cost= 280,000+400,000+60,000= $740,000
e)Product A is under costed in volume based compared to ABC
Product B is over costed in volume based compared to ABC
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