Current Designs has two main product lines - composite kayaks, which are handmade and

very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Design's

controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to

ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so

complex that its costs are greater than its benefits.

Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead.

PLEASE provide formulas used in excel to achieve answers, if needed. Thank you!

10 Current Designs has two main product lines- composite kayaks, which are handmade and 11 very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Design's 12 controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so 13 complex that its costs are greater than its benefits 14 15 Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. 16 17 Activities Cost 18 Designing new models Creating and testing prototypes Creating molds for kayaks $174,081.25 19 $218,500.00 20 $270,968.75 21 $57,500.00 Operating oven for the rotomolded kayaks 22 $40,250.00 Operating the vacuum line for the composite kayaks Supervising production employees Curing time:(the time that is needed for the chemical 23 $258,750.00 24 25 processes to finish before the next step in 26 the production process; many of these costs are related to the space required in the building) 27 28 $273,700.00 29 $1,293,750.00 Total 30 31 As Diane examines the data, she decides that the cost of operating the oven for the rotomolded kayaks and the cost of operating 32 33 the vacuum line for the composite kayaks can be directly assigned to each of these products lines and do not need to be allocated 34 with the other costs. 35 36 Instructions 37 For purpose of this analysis, assume that Current Designs uses $269,100 in direct labor costs to produce 1,000 composite kayaks 38 and $328,900 in direct labor costs to produce 4,000 rotomolded kayaks each year. allocating overhead would allocate the common costs to each product line by using a al location basis such as the number of employees working on each type of kayak or the amount of factory space used for the production of each type of kayak. 40 Diane knows that about 50 % of the area of the plant and 50% of the employees work on the composite kayaks, and the remaining space 41 42 and other employees work on the rotomolded kayaks. Using this information and remembering that the cost of operating the oven and vacuum line have been directly assigned, determine the total amount to be assigned to the composite kayak line and the 43 rotomolded kayak line, and the amount to be assigned to each of the units in each line 44 45 46 (b) Another method of allocating overhead is to use direct labor dollars as an allocation basis. Remembering that the costs of the and $328,900 in direct labor costs to produce 4,000 rotomolded kayaks each year. (a) One method of allocating overhead would allocate the common costs to each product line by using a allocation basis such as the number of employees working on each type of kayak or the amount of factory space used for the production of each type of kayak. Diane knows that about 50 % of the area of the plant and 50 % of the employees work on the composite kayaks, and the remaining space and other employees work on the rotomolded kayaks. Using this information and remembering that the cost of operating the oven and vacuum line have been directly assigned, determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the amount to be assigned to each of the units in each line. (b) Another method of allocating overhead is to use direct labor dollars as an allocation basis. Remembering that the costs of the oven and the vacuum line have been assigned directly to the product lines, allocate the remaining costs using direct labor dollars as the allocation basis. Then, determine the amount of overhead that should be assigned to each unit of each product line using this method. (c) Activity-based costing requires a cost driver for each cost pool. Use the following information to assign the costs to the product lines using the activity-based costing approach Expected Use of Drivers Driver Amount for Driver Amount for Rotomolded Kayaks Composite Kayaks Activity Cost Pools Cost Drivers Designing new models Number of models Creating and test prototypes Number of prototypes 6 Creating molds for kayaks Number of molds 12 1 Supervising production kayaks Number of employees 12 12 15,000 Curing time Number of days of curing time 2,000 What amount of overhead should be assigned to each composite kayak using this method? What amount of overhead should be assigned to each rotomolded kayak using this method? Composite Kayaks (d) Which of the three methods do you think Current Designs should use? Why? Determine the total amount to be assigned to the composite kayak line and the rotomolded kayak line, and the amount to be assigned to (a) each of the units in each of the units in each line. Composite Rotomolded Directly assigned Value Value Remaining amount allocated 50% to each product line Value Value Total Number of units Value Value Cost assigned per unit (b) Determine the amount of overhead that should be assigned to each unit of each product using direct labor dollars as an allocation basis. Overhead Rate Total OH costs (a) Value Direct labor cost (b) Composite Rotomolded Value Value ? OH rate (a)(b) ? Composite Rotomolded Directly assigned Value Value Remaining amount allocated based on direct labor costs ? Total ? Number of units Value Value Cost assigned per unit ? (c) What amount of overhead should be assigned to each composite kayak and rotomolded kayak using the activity-based costing method? Estimated Use Activity-Based Activity Cost Pools Estimated Overhead of Cost Drivers OH Rates Design model Value Value Prototypes prototype mold Value Value Molds Value Value ? employee Supervision Value Value Curing time day Value Value ? Estimated Use Activity-Based of Cost Drivers Activity Cost Pools Estimated Overhead OH Rates Design Value model Value Prototypes Molds prototype mold employee day Value Value Value Value ? Supervision Value Value Curing time Value Value Composite Rotomolded Activity Cost Pools Expected Use of Drivers Overhead Rates Cost Assigned Expected Use of Drivers Overhead Rates Cost Assigned Design Value Value ? Value Value Prototypes Value Value Value Value ? Molds Value Value Value Value ? Supervision Value Value Value Value ? Curing time Value Value Value Value Total amount allocated Directly assigned Total Cost (a) Number of units(b) Value Value Cost assigned/unit (a)(b) (d) Which of the three methods do you think Current Designs should use? Why