Ch 4 Mastery Problem: Activity-Based Costing

WoolCorp

WoolCorp buys sheeps wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. Youve just been hired as a production manager at WoolCorp.

Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry.

The company would like you to evaluate its costing methods for its raw wool and wool yarn.

Single Plantwide Rate

WoolCorp is currently using the single plantwide factory overhead rate method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows:

Single Plantwide Factory Overhead Rate = (Total Budgeted Factory Overhead) (Total Budgeted Plantwide Allocation Base)

WoolCorp has been using combing machine hours as its allocation base.

The company would like to consider activity-based costing. In order to understand their current system better, you evaluate WoolCorps current method of costing for raw wool and wool yarn. The production staff has compiled the following information for you on the production of 500 pounds of either raw wool or wool yarn:

Mastery Problem: Activity-Based Costing WoolCorp WoolCars buy shop's woulfur farmers. The company agar certain lanuary of this year, and is making in en product offerings, pricing, and adors. The company be also samning its method of wagning avered to products. You've just been hired production manager at WooCorp. Currently welcorp makes two products: (1) raw, clean woel to be used as stuffing or insulation und (2) wool yarn for use in the textile industry. The company would like you to evaluate its costing methods for its row wool and wool yarn Single Plantwide Rate WoolCorp is currently using the single plantwide factory overtread rate method, which uses a predetermined overheed rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows: Single Plantwide Factory Overticad Ratc - (Total Budgeted Factory Overhead) = {Total Budgeted Plantwide Allocation Base) WoolCorphes been using combing machine hours as its allocation base. The company would like to consider activity-based costing. In order to understand their current system better, you evaluate Wool Corp's current method of costing for ran wool and woolyar. The production start has compiled the following information for you on the production of 500 pounds of cither raw wool or wool yarn Budgeted Factory Factory Overhead Type Overhead $25,600 Cleaning 38,400 Combing 1,300 Raw Wool Wool Yarn Tarn Hours of combing machine use required 70 30 In the following table, use combing machine hours as the allocation base for assigning overticad costs to each product. When required, round your answers to the nearest dollar. Single Plentwice Factory Overhead Rule: per combiny hour Raw Wool Wool Yarn Allocated factory overhead cost $ Activity-Based Costing In carcer to compare WooCarg's current method with activity- bading, you interview the production salf and compile the following information, which related to the out for a weel and wool yarn. Type of Cost Activity Base Total Cost Sorting Hours of sorting $25,000 Cleaning Units of deaning machine power 35.400 Combing Hours of combing machine use 1,300 Raw Wool Wool Yarn 800 3,200 Hours of soiting required Units of cleaning machine power required Hours of combing machine use required 1,920 4,480 70 30 In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent. Activity Activity Rate Sorting $ per sorting hour Cleaning $ per unit of cleaning machine power Combing $ per hour of combing machine use In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product's process. When required, round your answers to the nearest dollar. Raw Wool Wool Yarn Sorting cost $ $ Cleaning cost Combing cost Total cost