Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bernadette Inc. makes several products and uses one cost driver (direct labour hours) to assign overhead to the products. Bernadette has started to wonder whether

Bernadette Inc. makes several products and uses one cost driver (direct labour hours) to assign overhead to the products. Bernadette has started to wonder whether the use of activity based costing (ABC) would be more appropriate. To start, Bernadette would like to investigate what the costing would look like for one product (Product A) using ABC. Details are below.

Current Unit Information of Product A (using direct labour hours as the overhead cost driver)

Selling Price $23

Direct Materials $10

Direct Labour 6

Overhead 3

$19

# of units of Product A sold 150,000

For ABC purposes, Bernadette has broken down the overhead into 4 main activities with related costs:

Driver (total)

Total Cost

Product As consumption

Order Processing

10,000 orders

$500,000

3,000 orders

Batch setup

1,500 setups

800,000

350 setups

Equipment maintenance

35,000 machine hrs

1,400,000

20,000 MH

Packing

15,000 packs

100,000

2,000 packs

Required

  1. What is the total unit cost of Product A using activity based costing?
  2. Is Product A currently under-costed or over-costed?
  3. Give an example of one useful decision that Bernadette Inc. might make in relation to Product A now that they know a truer cost of Product A.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

12th Edition

978-0073526706, 9780073526706

More Books

Students also viewed these Accounting questions

Question

A service window closes just as they get to the front of the line.

Answered: 1 week ago