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Fisher Fixtures manufactures three types of lighting fixtures, with model names of Silver, Gold, and Platinum. It applies all indirect costs according to an annual
Fisher Fixtures manufactures three types of lighting fixtures, with model names of Silver, Gold, and Platinum. It applies all indirect costs according to an annual predetermined rate based on direct laborhours. The plant controller has recommended that the company switch to an activitybased costing system. The controller's staff prepared the following cost estimates for next year year for the recommended cost drivers.
Activity Recommended Cost Driver Estimated Cost Estimated Cost Driver Activity
Purchasing material Number of purchase orders $ purchase orders
Receiving material Direct materials cost $
Setting up equipment Number of production runs runs
Machine depreciation and maintenance Machinehours hours
Ensuring regulatory compliance Number of inspections inspections
Shipping Number of units shipped units
Total estimated cost $
In addition, management estimated direct laborhours for year
Assume that the following costdriver volumes occurred in January, year :
Silver Gold Platinum
Number of units produced
Direct laborhours
Number of purchase orders
Direct materials costs $ $ $
Number of production runs
Machinehours
Number of inspections
Units shipped
Labor costs are based on the contractual rate of $ per hour.
Required:
Compute the predetermined rate for year for use in the current productcosting system using direct laborhours as the allocation base.
Compute the perunit production costs for each model for January using direct laborhours as the allocation base and the predetermined rate computed in requirement a
Compute the predetermined overhead rate for year for each cost driver using the estimated costs and estimated cost driver units prepared by the controller's staff to be used in an ABC system.
Compute the per unit production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement cNote: Do not assume that total overhead applied to products in January will be the same for activitybased costing as it was for the laborhourbased allocation.
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