As you learned in the previous chapters, Current Designs has two main product linescomposite 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 companys 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.

Activities		Cost
Designing new models		$128,000
Creating and testing prototypes		160,000
Creating molds for kayaks		182,000
Operating oven for the rotomolded kayaks		42,000
Operating the vacuum line for the composite kayaks		26,000
Supervising production employees		184,000
Curing time (the time that is needed for the chemical processes to finish before the next step in the production process; many of these costs are related to the space required in the building)		160,000
Total		$882,000

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 $223,000 in direct labor costs to produce 1,000 composite kayaks and $285,750 in direct labor costs to produce 4,000 rotomolded kayaks each year.

(a)

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One method of assigning overhead would assign the common costs to each product line by using an assignment basis such as the number of employees working on each type of kayak or the amount of factory space used for the production of each type of kayak. Diane knows that about 50% of the area of the plant and 50% of the employees work on the composite kayaks, and the remaining space and other employees work on the rotomolded kayaks. Using this information and remembering that the costs of operating the oven and vacuum line have been directly assigned, determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the amount to be assigned to each of the units in each line. (Round cost assigned per unit to 2 decimal places, e.g. 125.25.)

		Composite		Rotomolded
Total cost assigned		$enter a dollar amount		$enter a dollar amount
Cost assigned per unit		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

Attempts: 1 of 3 used

(b)

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Your answer is correct.

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.)

		Composite		Rotomolded
Total cost assigned		$enter a dollar amount		$enter a dollar amount
Cost assigned per unit		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

Attempts: 2 of 3 used

(c)

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.

Activity Cost Pools		Cost Drivers		Driver Amount for Composite Kayaks			Driver Amount for Rotomolded Kayaks
Designing new models		Number of models		3			1
Creating and testing prototypes		Number of prototypes		6			2
Creating molds for kayaks		Number of molds		13			1
Supervising production employees		Number of employees		11			12
Curing time		Number of days of curing time		14,000			2,000

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, e.g. 125.25.)

		Composite		Rotomolded
Total cost assigned		$enter a dollar amount		$enter a dollar amount
Cost assigned per unit		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

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