Cases Case 5-67 Whitestone Company produces two subassemblies, JR-14 and RM-13, used in manufacturing trucks. Activity-Based Costing; Bud- The company is currently using an absorption costing system that applies overhead based on direct- geted Operating Margin labor hours. The budget for the current year ending December 31, 20x1, is as follows: (LO 5-1, 5-2, 5-4, 5-5, 5-7) 3. Total cost, JR-14, esti- WHITESTONE COMPANY Budgeted Statement of Gross Margin for 20x1 mated 20x2 product cost: $1,540,000 JR-14 RM-13 Total 4. Gross margin, RM-13: Sales in units 5,000 5,000 10,000 $(113,000) Sales revenue... $1,700,000 $2,200,000 $3,900,000 Ex Cost of goods manufactured and sold: Beginning finished-goods inventory. $ 240,000 $ 300,000 $ 540,000 Add: Direct material .. 1,000,000 1,750,000 2,750,000 Direct labor. 185, 185 92,593 277,778 Applied manufacturing overhead* 544,025 272,013 816,038 Cost of goods available for sale .... $1,969,210 $2,414,606 $4,383,816 Less: Ending finished-goods inventory.. 240,000 300,000 540,000 Cost of goods sold . $1,729,210 $2, 114,606 $3,843,816 Gross margin .. $ (29,210) $ 85,394 $ 56, 184 *Total manufacturing overhead (applied on the basis of direct-labor hours: Machining .... $ 424,528 Assembly . 216,981 Material handling 56,604 Inspection ..... 1 17,925 Total. $ 816,038 Mark Ward, Whitestone's president, has been reading about a product-costing method called activ- ity-based costing. Ward is convinced that activity-based costing will cast a new light on future profits. As a result, Brian Walters, Whitestone's director of cost management, has accumulated cost pool infor- mation for this year shown on the following chart. This information is based on a product mix of 5,000 units of JR-14 and 5,000 units of RM-13.units of JR-14 and 5,000 units of RM-13. Cost Pool Information for 20x1 Cost Pool Activity JR-14 RM-13 Direct labor Direct-labor hours 10,000 5,000 Machining Machine hours .. 15,000 30,000 Assembly . Assembly hours 6,000 5,500 Material handling Number of parts . 5 10 Inspection ... Inspection hours . 5,000 7,500 In addition, the following information is projected for the next calendar year, 20x2. JR-14 RM-13 Beginning inventory, finished goods (in units) 800 600 Ending inventory, finished goods (in units) .. 700 700 Sales (in units) .. 5,100 4,900 On January 1, 20x2, Whitestone is planning to increase the prices of JR-14 to $355 and RM-13 to $455. Material costs are not expected to increase in 20x2, but direct labor will increase by 8 percent, and all manufacturing overhead costs will increase by 6 percent. Due to the nature of the manufacturing process, the company does not have any beginning or ending work-in-process inventories. Whitestone uses a just-in-time inventory system and has materials delivered to the production facil- ity directly from the vendors. The raw-material inventory at both the beginning and the end of the monthChapter 5 ActivityBased Costing and Management is immaterial and can be ignored for the purposes of a budgeted income statement. The company uses the rst-in, rst-out (F1170) inventory method. Required: 1. 2. Explain how activity-based costing differs from traditional product-costing methods. Using activity-based costing, calculate the total cost for the following activity cost pools: machin- ing, assembly, material handling, and inspection. (Round to the nearest dollar.) Then, calculate the pool rate per unit of the appropriate cost driver for each of the four activities. (Hint: Refer to Exhibit 56, regarding calculation of the pool rate.) Prepare a table showing for each product line the estimated 20x2 cost for each of the following cost elements: direct material, direct labor, machining, assembly, material handling, and inspec- tion. (Round to the nearest dollar.) Prepare a budgeted statement showing the gnoss margin for Whitestone Company for 20x2. using activity-based costing. The statement should show each product and a total for the company. Be sure to include detailed calculations for the cost of goods manufactured and sold. (Round each amount in the statement to the nearest dollar.) (EMA, adapted] 227