Activity-based costing, under- or overallocated indirect costs

(continuation of 11-13). Wolfgang Iser, the controller of Starkuchen, wants to further examine the relative profitability of raisin cake and layered carrot cake in 1999. He questions the accuracy of the activitybased normal costing numbers. He notes that the 1999 actual manufacturing indirect cost was DM 256,256. This differs sizeably from the DM 210,800 budgeted amount. The 2002 actual indirect costs per activity area were as follows: nhyt45

REQUIRED 1. Calculate the under- or overallocated manufacturing indirect costs in 2002 for

a. Each of the five activity area indirect-cost pools

b. The aggregate of individual activity area indirect costs 2. Assume that Starkuchen allocates under- or overallocated indirect costs to individual accounts based on the allocated overhead component in that account. What are the pros and cons of using:

a. Five separate under- or overallocated adjustments (one for each activity area)?

b. One under- or overallocated adjustment for the aggregate of all activity area indirect costs?
3. Calculate the 2002 actual unit product cost for raisin cake and layered carrot cake using the information calculated in requirement 1a.
4. Comment on the implications of the product cost numbers in requirement 3 for Starkuchen’s pricing decisions in 2003.

Transcribed Image Text:

ACTIVITY AREA Mixing Cooking Cooling Creaming/icing Packaging 2002 ACTUAL COSTS DM 62,400 83,840 12,416 36,000 61,600 DM 256,256