The Deutsche Toy Company makes a variety of alpine dolls at its operation in Munich. Its manufacturing process is highly automated. A recently installed ABC system has four activity centres:

Two dolls are called “Hansel” and “Gretel.” They require 0.20 and 0.40 kg of materials, respectively, at a materials cost of Є1.50 for Hansel and Є2.20 for Gretel. One computer-controlled assembly line makes all dolls. When a production run of a different doll is started, a setup procedure is required to reprogram the computers and make other changes in the process. Normally, 600 Hansel dolls are produced per setup, but only 240 Gretel dolls. Products are packed and shipped separately, so a request from a customer for, say, three different products is considered three different orders.

Suppose the Gift Shop at the Munich Toy Museum (Spielzeugmuseum) just placed an order for 100 Hansel dolls and 50 Gretel dolls.

1. Compute the cost of the products shipped to the Munich Toy Museum Gift Shop.

2. Suppose the products made for the Munich Toy Museum Gift Shop required “Spielzeugmuseum” to be printed on each doll. Because of the automated process, printing the letters takes no extra time or materials, but it requires a special production setup for each product. Compute the cost of the products shipped to the Munich
Toy Museum Gift Shop.

3. Explain how the activity-based-costing system helps Deutsche Toy Company to measure costs of individual products or orders better than a traditional system that allocates all non-materials costs based on direct labour.

Transcribed Image Text:

Cost per Driver Unit Activity Centre Cost Driver Kilograms of materials Materials receiving and €1.20 per kg handling Production setup Number of setups €60 per setup Cutting, sewing, and assembly Packing and shipping Number of units €0.40 per unit Number of orders €10 per order