Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today,
Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo The management at Hampshire is currently working out a deal with the touring company to produce collapsible umbrellas and believes it can sell those umbrellas for $ each. Here are the costs that can be directly traced to this special order: Direct Materials: $ Direct Labor Hours: Hourly Rate of Direct labor: $ In the traditional costing approach, overhead is applied at the rate of $ per labor hour. This expansion in production will add additional overhead costs. The total overhead costs assuming production of the stick and collapsible umbrellas to include the cost pools and cost drivers are provided in Table An alternative costing method that might benefit Hampshire is the implementation of activitybased costing ABC Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information: Stick Collapsible Units Sold Selling Price $ $ Direct Material Cost per Unit $ $ Direct Labor Cost per Hour $ $ Variable Manufacturing Overhead $ $ Variable Selling Costs $ $ Labor Hours per Unit Sales Orders Purchase Orders Production Runs Material Moves Machine Setups Machine Hours Inspections Shipments Table : Direct Cost Information and Activities Activity Activity Cost Activity Cost Driver Order Processing $ Number of Sales Orders Purchasing $ Number of Purchase Orders Material Handing $ Material Moves Machine Setup $ Machine Setups Production $ Production Runs Assembly $ Machine Hours Inspecting $ Number of Inspections Shipping $ Number of Shipments Table : Activity Cost Pools and Cost Drivers Another alternative to traditional costing and ABC is timedriven activitybased costing TDABC You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: TimeDriven ActivityBased Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section. Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV: Calculate the allocation rates for each cost driver using ABC. Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas. Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas. Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.
Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo The management at Hampshire is currently working out a deal with the touring company to produce collapsible umbrellas and believes it can sell those umbrellas for $ each. Here are the costs that can be directly traced to this special order:
Direct Materials: $
Direct Labor Hours:
Hourly Rate of Direct labor: $
In the traditional costing approach, overhead is applied at the rate of $ per labor hour. This expansion in production will add additional overhead costs. The total overhead costs assuming production of the stick and collapsible umbrellas to include the cost pools and cost drivers are provided in Table
An alternative costing method that might benefit Hampshire is the implementation of activitybased costing ABC Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information:
Stick Collapsible
Units Sold
Selling Price $ $
Direct Material Cost per Unit $ $
Direct Labor Cost per Hour $ $
Variable Manufacturing Overhead $ $
Variable Selling Costs $ $
Labor Hours per Unit
Sales Orders
Purchase Orders
Production Runs
Material Moves
Machine Setups
Machine Hours
Inspections
Shipments
Table : Direct Cost Information and Activities
Activity Activity Cost Activity Cost Driver
Order Processing $ Number of Sales Orders
Purchasing $ Number of Purchase Orders
Material Handing $ Material Moves
Machine Setup $ Machine Setups
Production $ Production Runs
Assembly $ Machine Hours
Inspecting $ Number of Inspections
Shipping $ Number of Shipments
Table : Activity Cost Pools and Cost Drivers
Another alternative to traditional costing and ABC is timedriven activitybased costing TDABC You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: TimeDriven ActivityBased Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section.
Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV:
Calculate the allocation rates for each cost driver using ABC.
Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas.
Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas.
Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started