As you learned in the previous chapters, Current Designs has two main product linescomposite kayaks, which are handmade and very labour-intensive, and rotomoulded kayaks, which require less labour but use more expensive equipment. Current Designs controller, Helen Martin, is now evaluating several methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the companys products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Helen has decided to use the following activities and costs to evaluate the methods of assigning overhead.
As you learned in the previous chapters, Current Designs has two main product lines-composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. As Diane examines the data, she decides that the cost of operating the oven for the rotomolded kayaks and the cost of operating the vacuum line for the composite kayaks can be directly assigned to each of these product lines and do not need to be assigned with the other costs. For purposes of this analysis, assume that Current Designs uses $235,000 in direct labor costs to produce 1,000 composite kayaks and $321,250 in direct labor costs to produce 4,000 rotomolded kayaks each year. One method of assigning overhead would assign the common costs to each product line by using an assignment basis such as the number of about 50% of the area of the plant and 50% of the employees work on the composite kayaks, and the remaining space and other employ work on the rotomolded kayaks. Using this information and remembering that the cost of operating the oven and directly assigned, determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the am. assigned to each of the units in each line. (Round cost assigned per unit to 2 decimal places, eg. 125.25.) eTextbook and Media Another method of assigning overhead is to use direct labor dollars as an assignment basis. Remembering that the costs of the oven and the vacuum line have been assigned directly to the product lines, allocate the remaining costs using direct labor dollars as the allocation basis. Then, determine the amount of overhead that should be assigned to each unit of each product line using this method. (Round cost assigned per unit to 2 decimal places, e.g. 125.25.) Activity-based costing requires a cost driver for each cost pool. Use the following information to assign the costs to the product lines using the activity-based costing approach. What amount of overhead should be assigned to each composite kayak using this method? What amount of overhead should be assigned to each rotomolded kayak using this method? (Round cost assigned per unit to 2 decimal places, eg. 125.25.)
