More ABC Practice Cooper Kids Cars produces two lines of battery powered cars for kids: a basic
Question:
More ABC Practice
Cooper Kids Cars produces two lines of battery powered cars for kids: a basic Jeep model and a luxury
Corvette line. The owner, Caroline Cooper, suspects that her products are costed improperly and her
Jeep line is subsidizing her Corvette product. She wants to employ ABC to get a better handle on her
Overhead costs. She identifies the following cost pools:
Activity Center
Cost Driver
Traceable
Costs
Total Activity
Jeep Activity
Corvette
Activity
Assembly
# of parts
$500,000
20,000
8,000
12,000
Detailing
Direct-labor
hours
$300,000
4,000
1,000
3,000
General
Machine-hours
$200,000
5,000
3,500
1,500
Total Overhead Costs are budgeted at $1,000,000.
Required:
a.
Compute the predetermined overhead rate if a traditional, plant-wide rate is used. Use
machine-hours as your driver. Apply overhead to both the Jeep and Corvette product lines.
b. Compute the overhead rate for each activity center.
c.
Assume ABC is used. Compute the amount of overhead that should be applied to both the Jeep
and Corvette product lines.
d. Comment on whether you think ABC is appropriate for Cooper Kids Cars. Do you think cross-
subsidization was occurring at this company?
e. Cooper is considering taking on a one-time special order which would require 1,000 parts, 200
direct labor hours and 1,300 machine hours. Using the Activity Center OH rates you computed
in part (c), how much overhead would be applied to this special order if she accepts it.
Expert Answer:
Lets address each part of the question a Compute the predetermined overhead rate if a traditional plantwide rate is used Use machinehours as your driv... View the full answer
