A B C D E F G H Activity-Based Costing Versus Traditional Approach, Activity-Based Management. Quality Furniture, Inc., produces a wood desk that sells for $500 and a wood table that sells for $900. Last year, total overhead costs of $6,000,000 were allocated based on direct labor costs. Direct labor costs totaled $2,000,000 last year, and Quality Furniture produced 15,000 desks and 5,000 tables. Total direct labor and direct materials costs by product for last year were as follows: 12345678 Direct materials Direct labor Sales price Total OH Units produced Desk 1,575,000 1,200,000 500 15,000 Table Total 950,000 800,000 900 2,000,000 6,000,000 5,000 The management of Quality Furniture would like to use activity-based costing to allocate overhead rather than one plantwide rate based on direct labor costs. The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs. 10 Activity Purchase orders Machine setups Machine maintenance Quality inspections Total Estimated Cost Driver Activity Cost Driver Estimated Overhead Costs Desk Table Total Number of purchase orders Number of setups Machine hours $ 800,000 900 100 1,000 1,600,000 240 260 500 2,400,000 42,000 18,000 60,000 Number of inspections 1,200,000 $6,000,000 15,000 5,000 20,000 K 11 Required: 1. Calculate the direct materials cost per unit and direct labor cost per unit for each product. 12 2. 13 14 3. a. Using the plantwide allocation method, calculate the predetermined overhead rate and determine the overhead cost per unit allocated to the desk and table products. b. Using the plantwide allocation method, calculate the product cost per unit for the desk and table products. Round results to the nearest cent. a. Using the activity-based costing allocation method, calculate the predetermined overhead rate for each activity. (Hint: Step 1 2.18 2.23 2.24 2.26 2.32 2.34 Ready Accessibility: Investigate 3.32 2.38 3.31 3.41 3.46 + Type here to search O W 56 13 14 A 2. 3. 15 16 B D E a. Using the plantwide allocation method, calculate the predetermined overhead rate and determine the overhead cost per unit allocated to the desk and table products. b. Using the plantwide allocation method, calculate the product cost per unit for the desk and table products. Round results to the nearest cent. a. Using the activity-based costing allocation method, calculate the predetermined overhead rate for each activity. (Hint: Step 1 through step 3 in the activity-based costing process have already been done for you; this is step 4.) b. Using the activity-based costing allocation method, allocate overhead to each product. (Hint: This is step 5 in the activity-based costing process.) Determine the overhead cost per unit. Round results to the nearest cent. 17 18 c. What is the product cost per unit for the desk and table products? 4. Calculate the per unit profit for each product using the plantwide approach and the activity-based costing approach. How much did the per unit profit change when moving from one approach to the other? 19 20 #1 Materials & Labor Cost per Unit 21 Desk Table 22 Direct materials 105.00 23 Direct Labor 80.00 190.00 160.00 24 25 #2.a PDOH 26 Estimated OH Costs Estimated DL$ 6,000,000 2,000,000 3.00 27 28 Desk Table 29 OH Applied 3,600,000 2,400,000 30 31 #2.b Desk Table 32 Direct materials 33 Direct Labor 105.00 80.00 190.00 160.00 34 35 OH Applied Product cost per unit 240.00 480.00 425.00 830.00 36 37 #3 ABC 38 #3.a #3.b Desk Unloc #13 ABC Activity Pools Cost Pools Purchase orders Machine setups Machine maintenance Quality inspections B 4 5 46 47 48 49 50 51 #4 Plantwide: 52 53 Sales, per unit 54 Cost, per unit 55 Gross Profit, per unit 56 57 ABC: 58 59 Sales, per unit 60 Cost, per unit 61 Gross Profit, per unit 62 63 Change in gross Profit: 64 65 66 Desk Table Estimated Driver Driver OH Rate Driver Applied Used Overhed Driver Applied Used Overhed Activity 800,000 # of purchase orders 1,000 800 1,600,000 # of setups 500 3,200 2,400,000 Machine hours 60,000 40 1,200,000 # of inspections 20,000 60 6,000,000 Desk Table #3.c Units Produced Overhead Cost per Unit Direct materials Direct Labor Total Unit Cost Desk Table + Unlocked Work Area