Activity-based costing problem

Factory A produces golf carts. One of its plants in Texas produces two versions of carts: a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, bigger tires, and softer seats. At the beginning of the year, the following data were prepared by the controllers office for this Texas plant:

Basic Deluxe

Expected Quantity to Produce 20,000 carts 10,000 carts

Selling Price $ 1,800 $ 3,600

Direct Material Cost $ 500 $ 1,000

Direct Labor Cost $ 300 $ 600

Machine Hours 1,000 3,000

Direct Labor Hours 10,000 10,000

Activity Center (Cost Driver)

Engineering Support (Hours) 1,500 4,500

Receiving (Orders Processed) 300 500

Material Handling (Number of Moves) 2,000 4,000

Purchasing (Number of Orders) 100 200

Maintenance (Machine Hours Used) 1,000 3,000

Paying Suppliers (Invoices Processed) 250 500

Equipment Setups (Number of Setups) 20 60

Total overhead costs of $6,000,000 associated with activity centers are reported as:

Maintaining Equipment $ 1,140,000

Engineering Support $ 1,200,000

Material Handling $ 1,200,000

Setting Up Equipment $ 960,000

Purchasing Materials $ 600,000

Receiving Goods $ 400,000

Paying Suppliers $ 300,000

Providing Facility Space $ 200,000

Facility-level costs are allocated on basis of machine hours used . This provides a measure of time the facility is used by each product.

Requirements:

Calculate the cost to produce each type of cart using direct labor hours as basis to allocate overhead costs.

Calculate the cost to produce each type of cart using activity-based-costing.

Explain the difference in the costs using the two different accounting systems. Provide appropriate supporting quantitative analysis.