A form for using Excel to recreate the Review Problem related to Aerodec, Inc., is shown below.

Question:

A form for using Excel to recreate the Review Problem related to Aerodec, Inc., is shown below. For simplicity, the form excludes the Parts Administration and Material Receipts activities that were included in the Review Problem. Download the workbook containing this form in the Connect Library. On the website you will also receive instructions about how to use this worksheet form.

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You should proceed to the requirements below only after completing your worksheet.
Required:
1. Check your worksheet by reducing the direct labor-hours per unit to 2 for the Deluxe model in cell B10. The Data area of the worksheet should look like this:

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The Deluxe model’s unit product cost under traditional costing should now be $74.00 and the ABC unit product cost should be $143.89. If you do not get these results, find the errors in your worksheet and correct them.

a. What happened to the predetermined overhead rate when the direct labor-hour requirement for the Deluxe model dropped from 5 hours to 2 hours? Explain.

b. Compare the unit product costs for the Tourist model before and after changing the direct laborhour requirements for the Deluxe model. The traditional unit product cost of the Tourist model increased from $109 to $115 when the direct labor-hour requirement for the Deluxe model changed from 5 to 2 hours per unit. In contrast, the ABC unit product cost of the Tourist model increased from $100.15 to $101.02. Which costing method do you trust more for making decisions? Explain.
2. Change the direct labor-hour requirement for the Deluxe model back to 5 hours in cell B10. Assume that the production orders change so that the Deluxe model will have 300 orders in cell C19 and the Tourist model will have 100 orders in cell D19. The Data area should now look like this:

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a. What effect does this change have on the traditional unit product costs? Explain.

b. What effect does this change have on the ABC unit product costs? Explain.

c. Which method, the traditional direct labor-based costing system or the ABC costing system, apparently provides more accurate costs? Explain.
3. Change the data in red so that the Data area looks like this:

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a. Are the traditional unit product costs for the two products the same or different? Explain.

b. Are the ABC unit product costs for the two products the same or different? Explain.

c. Which method, the traditional direct labor-based costing system or the ABC costing system, apparently provides more accurate costs? Explain.

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Related Book For  book-img-for-question

ISE Introduction To Managerial Accounting

ISBN: 9781260091755

8th Edition

Authors: Peter Brewer, Ray Garrison, Eric Noreen

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