2) Summer Time Corporation (STC) is located in Toronto, Ontario. The company is owned by 2 friends that met each other while attending Algoma University. The company manufactures two summer time game products, Bocce Ball Sets and Croquet Sets. Croquet Sets were added as a product line two years ago. Croquet Sets are the more complex of the two products, requiring one hour of direct labour time per unit to manufacture, compared to one-half hour of direct labour time for Bocce Ball Set. Croquet Sets are produced on an automated production line.

 

Indirect costs are currently allocated to the products on the basis of direct labour hours. The company estimated it would incur $332,500 in manufacturing overhead costs and produce 6,000 units of Croquet Sets and 20,000 units of Bocce Ball Sets during the current year. 

 

The company unit costs for materials and direct labour are as follows:

 

                                                 Bocce Ball Set                              Croquet Set

Direct labour                                     $9                                                         $18

Direct materials                             $12                                                         $16

 

 

 

 

 

 

 

The Indirect costs are as follows:

                                                                            Estimated       

                                                        Estimated   Activity               Estimated

                                                           Indirect  Bocce Ball            Activity          

                                                            Costs          Sets                  Croquet Sets   Total         Total

Activity cost pools/drivers:

Machine setups                                    $153,000          700                     1,000     1,700               

Purchase orders                                   $27,500           300                     200       500                      

Machine hours                                        $128,000       5,000                  11,000      16,000                  

Maintenance requests                            $24,000           200                     300        500                        

    Total                                             $332,500

 

Complete the following:

 

a.   Determine the unit cost of a Bocce Ball and Croquet Set using traditional (simple) costing with hours as the allocation base.

b.   Determine the unit cost of a Bocce Ball and Croquet Set using activity-based costing.

c.   Provide an explanation as to why if there is a difference between the traditional and activity-based costing.