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 $3,000$ collapsible umbrellas and believes it can sell those umbrellas for $$14\mathrm{.}00$ each. Here are the costs that can be directly traced to this special order:

Direct Materials: $$9,300$

Direct Labor Hours: $600$

Hourly Rate of Direct labor: $$8\mathrm{.}00$

In the traditional costing approach, overhead is applied at the rate of $$24\mathrm{.}60$ 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 $2.$

$$

An alternative costing method that might benefit Hampshire is the implementation of activity$-$based 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 $60,0003,000$

Selling Price $$12\mathrm{.}50$ $$14\mathrm{.}00$

Direct Material Cost per Unit $$3$ $$3\mathrm{.}10$

Direct Labor Cost per Hour $$7\mathrm{.}50$ $$8\mathrm{.}00$

Variable Manufacturing Overhead $$0\mathrm{.}40$ $$0\mathrm{.}40$

Variable Selling Costs $$1\mathrm{.}10$ $$1\mathrm{.}10$

Labor Hours per Unit $0\mathrm{.}20\mathrm{.}2$

Sales Orders $1201$

Purchase Orders $503$

Production Runs $456$

Material Moves $8610$

Machine Setups $1306$

Machine Hours $52532$

Inspections $20010$

Shipments $603$

Table $1$: Direct Cost Information and Activities

Activity Activity Cost Activity Cost Driver

Order Processing $$35,000$ Number of Sales Orders

Purchasing $$36,000$ Number of Purchase Orders

Material Handing $$28,000$ Material Moves

Machine Setup $$14,000$ Machine Setups

Production $$99,000$ Production Runs

Assembly $$80,000$ Machine Hours

Inspecting $$11,000$ Number of Inspections

Shipping $$7,500$ Number of Shipments

Table $2$: Activity Cost Pools and Cost Drivers

Another alternative to traditional costing and ABC is time$-$driven activity$-$based 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: Time$-$Driven Activity$-$Based 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:

$1.$ Calculate the allocation rates for each cost driver using ABC.

$2.$ Use the traditional costing approach to calculate the total cost andUnits Sold $60,0003,000$

Selling Price $$12\mathrm{.}50$ $$14\mathrm{.}00$

Direct Material Cost Per Unit $$3\mathrm{.}00$ $$3\mathrm{.}10$

Direct Labor Cost Per Hour $$7\mathrm{.}50$ $$8\mathrm{.}00$

Variable MO $$0\mathrm{.}40$ $$0\mathrm{.}40$

Variable Selling Costs $$1\mathrm{.}10$ $$1\mathrm{.}10$

Labor Hours Per Unit $0\mathrm{.}20\mathrm{.}2$

Sales Orders $1201$

Purchase Orders $503$

Production Runs $456$

Material Moves $8610$

Machine Setups $1306$

Machine Hours $52532$

Inspections $20010$

Shipments $603$

Activity Information from Instructions

Activity Activity Cost Activity Cost Driver

Order Processing $$35,000$ Number of Sales Orders

Purchasing $$36,000$ Number of Purchase Orders

Material Handing $$28,000$ Material Moves

Machine Setup $$14,000$ Machine Setups

Production $$99,000$ Production Runs

Assembly $$80,000$ Machine Hours

Inspecting $$11,000$ Number of Inspections

Shipping $$7,500$ Number of Shipments

Requirement $1$

Activity Total Costs Quantity of Cost Allocation Base Overhead Allocation Rate

Order Processing $ X $

Purchasing $ X $

Material Handing $ X $

Machine Setup $ X $

Production $ X $

Assembly $ X $

Inspecting $ X $

Shipping $ X $

Requirement $2$

Traditional Costing

Stick Umbrella Collapsible Umbrella Total

Revenues $ $ $

Direct Materials $ $ $

Direct Labor $ $ $

Variable Overhead $ $ $

Variable Selling Costs $ $ $

Allocated Fixed Overhead $ $ $

Total Costs $ $ $

Operating Income $ $ $

Operating Income $\%\%\%$

Per Unit Operating Income $ $

Requirement $3$

Activity$-$Based Costing

Stick Umbrella Collapsible Umbrella Total

Revenues $ $ $

Direct Materials $ $ $

Direct Labor $ $ $

Variable Overhead $ $ $

Variable Selling Costs $ $ $

Order Processing Costs $ $ $

Purchasing Costs $ $ $

Material Handing Costs $ $ $

Machine Setup Costs $ $ $

Production Costs $ $ $

Assembly Costs $ $ $

Inspecting Costs $ $ $

Shipping Costs $ $ $

Total Costs $ $ $

Operating Income $ $ $

Operating Income $\%\%\%$

Per Unit Operating Income $ $

Requirement $4$

Costs per Unit Stick Umbrella Collapsible Umbrella

Traditional $ $

ABC $ $

Difference $ $