Activity-Based Costing Best Bet Automotive, Inc. has been manufacturing automobi
ID: 2491485 • Letter: A
Question
Activity-Based Costing
Best Bet Automotive, Inc. has been manufacturing automobiles for the past fifteen years. The company has been using the same job-order costing system for the entire time they have been in business. The system applies indirect manufacturing costs based on the number of machine-hours.
The income statement reflecting last year’s information (before variable overhead cost allocation) is reflected below.
You have been hired as an outside consultant to compare the traditional costing system to an activity- based costing system. Based on interviews with company staff, you have come up with the following cost allocation information:
Based on the information provided:
(1) Prepare an income statement using the traditional job-order costing system to allocate variable overhead costs. Round all amounts to the nearest dollar.
(2) Prepare an income statement using the activity-based costing system you formulated based on staff interviews. You must list the variable overhead costs separately on your income statement. Round all amounts to the nearest dollar.
(3) Based on the statements you prepare, would you recommend that Best Bet Automotive,Inc. adopt the activity based costing system? Include the reasoning for your answer.
Explanation / Answer
Answer:(1) Predetermined manufacturing overhead=$6700000/19000 MH=$352.63 per MH
Answer:(2)
Answer:(3) Yes, you will recommend that Best Bet Automotive,Inc. adopt the activity based costing system because it considers cost at every aspect.
Best Bet Automotive Inc. Income Statement For the year ended December 31,2015 Particulars Budget Standard Superior Total Sales 9000000 22000000 15000000 46000000 Less: Direct materials 2250000 6600000 6000000 14850000 Direct labor 450000 1100000 750000 2300000 Indirect manufacturing costs 1586842 2821053 2292105 6700000 Contribution margin 4713158 11478947 5957895 22150000 Common fixed costs 4000000 Gross Profit 18150000Related Questions
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