Chapter 4 Homework Problem Problem B Sunshield Company makes three types of sunglasses: Nerds, Stars, and Fashions. Sunshield presently allocates overhead to products using a rate based on direct labor-hours. A consultant recommended that Sunshield switch to activity-based costing, Management decided to give ABC a try and identified the following activities, cost drivers, and costs for a typeal year for each activity center. Use this information to compute the overhead rates for each cost driver Activity RecommendedCosts Est. Cost driver Cost Driver units oo runs Production setup Prodationuns$30,000 Order processing Orders$50,000 sof $20,000 200 orders materials used depreciation anMachine-hour ty management Inspections Packing and shipping tUnits shipped $60,000 10,000 mach-hrs $50,000 goooo 40 inspections I 20,000 units Total Overhead $250,000 In addition, there are 2.500 direct labor-hours in atypical year and direct labor costs are $1S per hour. Assume the following activities occurred in February Nerds Stars Fashions $4.000 $2.500 100 costs $2,000 Direct labor hours Pro ion Runs of a. Compute an overhead allocation rate (1) for each of the cost drivers recommended by the consultant and b. Management wants to compare the product costs using ABC and the traditional method for the month of c. To derive product costs under ABC, compute the production costs for each product for February using the d. Management has seen your numbers and wants to know how you account for the discrepancy between the (2) for direct labor February. Compute the production costs for each product for February using direct labor-hours as the allocation base. (Note: Production costs are direct materials, direct labor, and overhead.) cost drivers recommended by the consultant. product costs using direct labor-hours as the allocation base and using activity-based costing. Write a brief response to management ) Compute overheedlocation rates (POHIR) for each of the cost drivers and for direct Inbor. Hist? Estimated Costs Rate Production sebup Order processing Materials handling Equip deprec& maint per order per pound (Ib) Packing and shipping 250,000 per direct labor hour Hint? Direct labor use totol overheed for divect lebor (b)Compute the production costs (DM, DL and Overhead applied) using direct labor as the ONLY allocation base for averhead. Show calculations Nerds Stars Fashions Direct materials Direct labor Hint? Overhead applied TOTAL COST Stars Self Check: d) Compute the production costs (OM, DL, and Overhead appled using Activiy based costing (Show caleulatilons In the row beslow) Nerds Stars Fashions Hint? Hint? Direct materials Direct labor Overhead applied Production setup Order processing Hint? Materials handling show colculptions in this row Equip deprec & maint owcootions in th's row Quality mangement Hint Packing and shippine TOTAL COST Nerds Self Check Sheet2 Sheet3 + Sheet
