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ElegantElegant Doors , Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categories ( materials and
ElegantElegant Doors Inc., produces two types of doors, interior and exterior. The company's simple costing system has two direct cost categoriesmaterials and labor and one indirect cost pool. The simple costing system allocates indirect costs on the basis of machinehours. Recently, the owners of ElegantElegant Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to ElegantElegant Doors production for the most recent year follows:
Interior
Exterior
Units sold
Selling price
$
$
Direct material cost per unit
$
$
Direct manufacturing labor cost per hour
$
$
Direct manufacturing laborhours per unit
Production runs
Material moves
Machine setups
Machinehours
Number of inspections
The owners have heard of other companies in the industry that are now using an activitybased costing system and are curious how an ABC system would affect their product costing decisions. After analyzing the indirect cost pool for ElegantElegant Doors the owners identify six activities as generating indirect costs: production scheduling, material handling, machine setup, assembly, inspection, and marketing. ElegantElegant Doors collected the following data related to the indirect cost activities:
Activity
Activity Cost
Activity Cost Driver
Production scheduling
$
Production runs
Material handling
$
Material moves
Machine setup
$
Machine setups
Assembly
$
Machinehours
Inspection
$
Number of inspections Calculate the cost of an interior door and an exterior door under the existing simple costing system.
Calculate the cost of an interior door and an exterior door under an activitybased costing system.
Compare the costs of the doors in requirements and Why do the simple and activitybased costing systems differ in the cost of an interior and exterior door?
How might ElegantElegant Doors Inc., use the new cost information from its activitybased costing system to address the declining market share for interior doors?
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