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Crane Inc. manufactures and distributes three types of water skis: beginner, intermediate, and advanced. Production is highly automated for the beginner model, whereas the
Crane Inc. manufactures and distributes three types of water skis: beginner, intermediate, and advanced. Production is highly automated for the beginner model, whereas the intermediate and advanced models require increasing degrees of labour, depending on the shaping and finishing processes. Crane applies all indirect costs to production using a single predetermined overhead (OH) rate based on direct labour hours (DLH). Management estimates that 29,400 DLH will be used in the upcoming year, at a rate of $16 per hour. Assume that the following activity took place in the first month of the new year: Beginner Intermediate Advanced Number of units produced 19,600 7,800 2,900 Direct materials costs $20,400 $12,700 $7,800 Direct labour hours 500 1,000 2,000 Number of orders 6 4 3 Number of production runs 2 2 3 Kilograms of material used 7,800 3,100 1,500 Machine hours 1,200 290 200 Number of inspections 3 3 3 Number of units shipped 17,600 7,400 2,500 A consultant recently suggested that Crane switch to an activity-based costing system, and assembled the following information: Activities Order processing Material handling Recommended Cost Drivers Estimated OH Cost Cost Drivers Number of orders $ 59,000 100 orders Kilograms of materials used 590,000 118,000 kilograms Machine depreciation and maintenance Quality control Machine hours 420,000 20,000 hours Number of inspections 107,000 40 inspections $ 1,176,000
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