D G Make sure you fill in all Yellow cells. Yellow cells left blank will receive zero cre Problem E: Sunshield Company makes three types of sunglasses: Nerds, Stars, and Fashions. Sunshield presently allocates overhead to products using a rate base labor-hours. A consultant recommended that Sunshield switch to activity-based costing. Management decided to give ABC a try and identified the following acti drivers, and costs for a typical year for each activity center, Use this information to compute the overhead rates for each cost driver 3 4 Recommended Estimated Cost Activity Cost Driver Costs Driver Units 6 Production setup Production runs 4:0.000 100 runs 7 Order processing Orders 20,070 orders 8 Materials handling Pounds of materials used 20,000 ROOD Equipment depreciation & Maintenance Machine hours 60,000 10000 machine hour 10 Quality management Inspections 50.000 40 Inspections 11 Packing & shipping Units shipped 40,000 20000 units 12 Total Overhead 250.000 14 In addition, there are 2,500 direct Labor-hours In a typical year and direct Labor costs are $15 per hour. 15 Assume the following activities occurred in February: 16 17 Nerds Star Fashion 18 Units produced 1,010 500 400 19 Direct materials costs 4,000 $ 2.500 9 20 Direct labor hours 100 100 89 21 Orders 22 Production runs 23 Pounds of materials 200 200 24 Machine hours 500 300 25 inspections 26 Unity Shipped 1,000 400 20 Problem E 31 Tal Compute overhead allocation rates [1] for each of the cost drivers recommended by the comaltant and [?) for direct labor 33 Activity Estimated Costs Audiragged cost driver Activity Rate (predetermined overhead rate) Problem D Problem EProblem E $1 (a] Compute overhead allocation rates (1) for each of the cost drivers recommended by the consultant and (21 for dined labor 13 Activity Estimated Costs 14 Production setup Estimated cost driver Activity Hate fpredetermined overhead rate 35 Order processing 50,000 240 cider wood per run 36 Materials handling 37 Equip deprec & maint 20,000 5,000 64 50,DO0 38 Quality mangement 10,600 machine hrs 8-30 per pound (5) 50,000 Forreaching hour 30 Packing and shipping Inspections 1 250:00 per inspection 40 41 Direct labor 240/000 42 per direct liber hour 43 fore nowd overbead for arect labort 44 (b) Management wants to compare the product costs using ABC and the traditional method for the month of February, Compute the production costs for each product for 46 February using direct labor-hou as the allocation base. [Note: Production costs are direct materials, direct labor, and applied overhead.) 47 (show calculations in the row below when needed) Nerds stars Fashions Totals 50 Clrect materials 52 Direct labor 500 54 Overhead applied TOTAL COST 151500 14,000 5 57 59 () To derive product costs under Activity Based Costing, compute the production costs for each product for Febinurpusing the cost driven recommended by the consultant. 60 Note: To apply overhead, take the actual units of the cost driver s that activity rate for rach product Uli The ter 61 (Show calculations in the row below) under bob 62 163 Stars Tolab Problem p Problem E Type here to searchConditions Formina Formatting - Table s. Alone ent X (Show calculations in the row below) H The rows in Tobe under both metho Stairs Fashion Totals should agree but th 8 090 3 Overhead applied Direct materials [some as in Part B abarrel 5 each product will b Direct labor eat brough about Overhead applied: Production setup Order proofsing Materials handling Equip doprec & maint Quality mangement Packing and shipping TOTALCOST [d) Management has seen your numbers and wants to know how you account for the discrepancy between the product costs utling direct labore hour as the allocation base to apply overhead versus using activity based conting to apply overhead. Write a brief response to management with you caplantion This Excel Worksheet was created by Amy Bohrer, CPA and is licensed under a Creative Commons Attribution 4:0 International Problem D Problem E O O O Type here to search70 Order processing 5,040 this a formal entered for Fe 71 tosteal order a activity rope for order proteroal (7/ orders . 577 per order) (27 orden a 577 parbader) 72 Materials handling 2,000 /is a formula entered for vos 73 74 Equip deprec & maint 900 75 27 moch bees 8 5 27 per MUD (moch ho : 5PP per Mid Food Bank SPP per AGO 76 Quality mangement 500 7,507 (that a formula ritered for you) TT 78 Packing and shipping 1,090 GO 1,607 (this o formosa entered for pool 80 TOTAL COST 15 16.600 5 137000 9 2. 185 41, 735 this a formala entered for youy (dj Management has seen your numbers and wants to know how you account for the discrepancy, between the product costs using direct labore hour as the 8.3 allocation base to apply overhead versus using activity based costing to apply overhead. Write a brief response to management with your explanation. This Excel Worksheet was created by Amy Bohrer, CPA and is licensed under a Creative Commons Attribution 4:0 International Problem D ProblemE D Type here to search O NWARE