Using the company’s traditional costing system, compute the total margin for the windows ordered by Avon Construction and Melun Builders during the year.

Question 2.2

Using the ABC system, compute the total margin for the windows ordered by Avon Construction and Melun Builders during the year.

 

Question 2 Dunant Windows is a small, family-owned company that builds specialty wooden windows for local builders. For years the company has relied on a simple costing system that applies manufacturing overhead to jobs strictly on the basis of direct labor hours (DLHS) for determining the costs of its products. The direct labor wage rate is 18 per hour. However, the company's president became interested in activity-based costing (ABC). An ABC design team was put together in collaboration with an external consultant, and within a few months a prototype system had been developed. The activity cost pools, their activity measures, and practical capacity are as follows: Activity Cost Pool Making windows Processing orders Customer relations Other* Activity Measure Direct labor hours Number of orders Number of customers N/A Total Activity for the Year 80,000 DLHS 1,000 orders 200 customers N/A *The "Other" category includes business-sustaining resources unrelated to any of the activities in the costing system as well as idle capacity resources. The "processing orders" activity includes order taking from customers, setup, and job scheduling. The total overhead cost (both manufacturing and non-manufacturing) for the year is 1,180,000 and includes the following cost items: