Question
Living Dolls, Inc. manufactures high quality dolls and markets them all over the world. Each year, the firm creates a finely crafted run of unique
Living Dolls, Inc. manufactures high quality dolls and markets them all over the world. Each year, the firm creates a finely crafted run of unique dolls with strictly limited numbers. Each of the Year dolls has its own individual appearance and costume. These dolls have quickly become collectors items and are highly sought after. Living Dolls also manufactures other types of dolls in much larger quantities. They are not frequently sold in toy stores (since they are not really intended for children) but are sold in specialty shops or to businesses and not-for-profit organizations which use them in their marketing campaigns. The regular dolls are not individually styled as are the Year dolls, but are still created with careful attention to detail.
For the first 80 years of its existence, the firm used a traditional job costing system with OH applied on the basis of DLH. At the beginning of 2020, an ABC system was designed and implemented. The two systems were run side-by-side during 2020 in order to provide a basis for assessment. The ABC system contains three cost pools. In molding, the body is manufactured from plastic resin. This process is similar for all the dolls, except for the quality and cost of the resin. The cost driver for molding is machine hours. In finishing, the hair and facial features are added by artisans who are specially trained to give each doll a personality. The cost driver is direct labour hours. In costume, the dolls are dressed in clothing to match their personalities (whether unique to the individual for the year dolls or unique to the model for the other dolls) and their hair is styled. The cost driver is direct material dollars.
At the beginning of 2020, the following estimations were made:
Direct materials $2,547,000
Direct labour 654,000
OH:
Molding 1,123,000
Finishing 359,000
Costume 824,000
Direct labour hours 20,000
Machine hours 532,000
At the end of 2020, the following actual amounts had been recorded:
Direct materials $2,127,200
Direct labour 423,500
OH:
Molding 902,300
Finishing 317,000
Costume 625,000
Direct labour hours 17,400
Machine hours 452,100
The Year doll for 2020 is named Kacinda. She is meant to represent the power of the human spirit to endure and rise above adversities. There were 2,000 Kacinda dolls created, more than prior Year dolls, due to unexpectedly high demand. Living Dolls sold the Kacinda dolls for $1,000 each, but they are now being traded on eBay and other online auctions at more than $5,000 each. The Kacinda doll run (all 2,000) required $395,000 in direct materials, and $159,230 in direct labour. Machine hours required to produce the model were 45,300 and direct labour hours were 1,280.
- What is the cost of each Kacinda doll using the traditional job costing system originally used by the firm?
- What is the cost of each Kacinda doll based on the ABC system implemented in 2020?
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