management accounting
Problem 5-55 Production-Based Costing versus Activity-Based Costing, Assigning Costs to Activities, Resource Drivers Willow Company produces lawnmowers. One of its plants produces two versions of mowers. a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower engine, a wider blade, and mulching capability. At the beginning of the year, the following data were prepared for this plant: Basic Model Deluxe Model 40,000 20,000 Expected quantity $180 $360 Selling price Prime costs eq mouborg chol .(8 [oboM bas A baboM) 215 $80 out.org $160 5,000 5,000 Machine hours tom ads Direct labor hours 10,000 10,000 4,500 Engineering support (hours) 1,500 Receiving (orders processed) 250 500 Materials handling (number of moves) 1,200 4,800 Purchasing (number of requisitions) 100 200 Maintenance (hours used) 1,000 3,000 Paying suppliers (invoices processed) 250 00 Smi 500 Setting up equipment (number of setups) 16 64 Additionally, the following overhead activity costs are reported: Maintaining equipment $114,000 ours Th Engineering support toire was takea to 120,000 Materials handling serger their own oxfamliff ? Setting up equipment ation necessary to 000.015 96,000 Purchasing materials 00G OPS aninido 60,000 Receiving goods 000,055 40,000* Paying suppliers Deparapamomni Providing space Pinistil 30,000 20,000 Total 'Receiving activity cost includes allocated share of forklift operators' salaries. Facility-level costs are allocated in proportion to machine hours (provides a measure of time the facility is used by each product). Receiving and materials handling use three inputs: two forklifts, gasoline to operate the forklift, and three operators. The three operators are paid a salary of $40,000 each. The operators spend 25% of their time on the receiving activity and 75% on moving goods (materials handling). Gasoline costs $3 per move. Depreciation amounts to $8,000 per forklift per year. Required: (Note: Round answers to two decimal places.) 1. Calculate the cost of the materials handling activity. Label the cost assignments as driver tracing or direct tracing. Identify the resource drivers. 2. Calculate the cost per unit for each product by using direct labor hours to assign all overhead costs. 3. Calculate activity rates, and assign costs to each product. Calculate a unit cost for each product, and compare these costs with those calculated in Requirement 2. 4. Calculate consumption ratios for each activity. 5. CONCEPTUAL CONNECTION Explain how the consumption ratios calculated in Requirement 4 can be used to reduce the number of rates. Calculate the rates that would apply under this approach
