Traditional Product Costing Versus Activity-Based Costing High Country Outfitter
ID: 2521021 • Letter: T
Question
Traditional Product Costing Versus Activity-Based Costing
High Country Outfitters, Inc., makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The accounting department has identified the following overhead costs and cost drivers for next year:
Cost Driver
$1,404,000
Number of setups
360,000
Number of orders
1,200,000
120,000
Number of kilowatt hours
Total predicted direct labor hours for next year is 60,000. The following data are for two recently completed jobs:
a. Determine the unit cost for each job using a traditional company-wide overhead rate based on direct labor hours.
Round rate to two decimal places.
Overhead rate per direct labor hour $Answer
Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.
b. Determine the unit cost for each job using ABC. Activity-based overhead rates:
Round cost answers to the nearest whole number, when needed.
Round cost per unit to two decimal places, if needed.
$Answer per setup
$Answer per order
$Answer per kwh
Overhead Item Expected CostsCost Driver
Maximum Quantity Setup costs$1,404,000
Number of setups
7,200 Ordering costs360,000
Number of orders
60,000 Maintenance1,200,000
Number of machine hours 80,000 Power120,000
Number of kilowatt hours
600,000Explanation / Answer
total estimated overhea Setup costs 1,404,000 ordering costs 360,000 maintenance 1,200,000 power 120,000 total estimated overhead 3,084,000 a. overhead rate = estimated overhead/estimated direct hours 3084,000/60,000 51.4 overhead rate per direct labor hour 51.4 Job 201 job 202 Cost of direct materials 18,500 20,000 cost of direct labor 24,125 76,250 overhead (270*51.4);(330*51.4) 13878 16962 total job cost 56,503 113,212 units 1,125 915 per unit cost 50.22 123.73 b) Setup costs (1,404,000/7200)= 195 per setup ordering costs (360,000/60,000)= 6 per order maintenance costs (1,200,000/80,000)= 15 per MH's power (120,000/600,000)= 0.2 per KWH Job 201 job 202 Cost of direct materials 18,500 20,000 cost of direct labor 24,125 76,250 overhead Setup costs(195*18);(195*22) 3510 4290 ordering costs(6*24);(6*45) 144 270 maintenace (15*540);(15*450) 8100 6750 power (.2*270);(.2*360) 54 72 total job costs 54,433 107,632 units 1,125 915 per unit cost 48.38 117.63
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